What is Business Debt Settlement?
Business debt settlement, also known as business debt negotiation or restructuring, is the process of working with creditors to settle outstanding debt balances for less than what is actually owed. The goal is to come to an agreement that reduces the total amount of debt to a more manageable number that the business can realistically pay off.
A debt settlement company acts as an intermediary to negotiate debt reductions on the business’s behalf. They leverage tactics like ceasing payments or threatening bankruptcy to get creditors to agree to settle debts for pennies on the dollar. This can relieve financial pressure and free up cash flow to reinvest in business growth.
How Does Business Debt Settlement Work?
The business debt settlement process generally works as follows:
Initial Consultation and Analysis
The first step is to meet with a business debt settlement company for an initial consultation. Here, they will conduct a full financial analysis to gain an understanding of total debts owed, payment history, revenues, expenses, assets, and other key financial metrics. This helps formulate a debt settlement strategy tailored to the unique situation.
Develop Proposed Settlement Offers
With a clear picture of the financial standing, the debt settlement company will calculate realistic reduced settlement offers to present to individual creditors based on factors like total debt balances, the age of the debts, and the company’s current struggles with making payments. The settlement offers will propose paying a percentage of total debts owed.
Formal Proposals and Negotiations
The debt settlement company will then formally contact each creditor with the proposed settlement offers and handle all negotiations. Using their expertise, they attempt to persuade creditors to accept the reduced payoffs by presenting financial hardship evidence and the potential benefits of avoiding bankruptcy. This can take some time as multiple rounds of correspondence may be needed before creditors agree to settlements.
Settlement Agreements Reached
As creditors accept the proposals and agree to debt reductions, binding settlement agreements are drafted and executed by each party. This legally solidifies the new reduced debt balances owed and payment terms.
Lump Sum Payments Made to Settle Debts
With all agreements in place, the business then works with the debt settlement company to come up with the lump sums needed to meet the settlements. This may involve tapping business revenues, loans from owners, or outside financing. The lump sum payments are then dispersed to fully settle the reduced debts.
Key Benefits of Business Debt Settlement
There are many advantages to business debt settlement that can restore financial viability:
- Debt Reductions: Settlements of 50% or more off total balances owed are common, with some over 90%. This brings debts to more affordable levels.
- Improved Cash Flow: With debts settled at lower amounts, more cash flow is freed up to invest in business operations.
- Avoid Bankruptcy: Settlements allow avoiding business bankruptcy and the severe financial and legal consequences.
- Tax Advantages: Settled debt not paid is not counted as taxable income.
- Stop Collection Efforts: Creditors stop collection efforts and calls once settlements are reached.
- Rebuild Credit: After settlements, businesses can start rebuilding credit by making payments on time.
What to Look for in a Business Debt Settlement Company
The right business debt settlement company can make a major difference in securing win-win agreements with creditors. Key things to look for include:
- Years of Experience: An established company with 5+ years experience likely has stronger negotiation leverage and expertise to get optimal settlements.
- Legal Resources: Having attorneys on staff with legal knowledge of debt settlements ensures agreements reached are fully compliant.
- Tailored Strategies: A one-size-fits-all approach rarely works. Look for analysis of the unique situation with a strategy tailored to specific debts and creditors.
- Strong Relationships: A company with extensive experience likely has existing relationships with major creditors, improving chances of settlement.
- Fair Fees: Fees should only be based on a percentage of settled debt amounts, rather than upfront costs or retainers.
- Good References: Talk to past clients about their experiences before deciding. Verified positive reviews are a good reference point.
As a credible debt settlement company with over 15 years experience, Delancey Street has all of these prerequisites covered to protect client interests and get the maximum debt relief possible. Get in touch at 212-210-1851 for a free consultation with our legal and financial experts on how we can help negotiate your business debts. With the right guidance, debt settlement can be a lifeline to resolve financial struggles and restore stability. Don’t wait to get the process started.
The Debt Settlement Process Step-by-Step
If you decide to move forward with Delancey Street for your business debt settlement needs, here is a walkthrough of the process our team will guide you through:
Step 1 – Comprehensive Financial Review
We will thoroughly review your business finances, including debts owed, creditors, revenues, expenses, assets, tax returns, and other documentation as needed to fully understand your situation. This helps formulate a tailored settlement strategy.
Step 2 – Calculate Settlement Amounts
Based on financials and our experience with creditors, we determine realistic reduced settlement offers to target for each debt that give a high probability of creditor acceptance.
Step 3 – Formally Contact Creditors
We formally contact each creditor by phone and letter to propose the debt settlement offers. Multiple rounds of correspondence are often needed to provide evidence of hardship and negotiate.
Step 4 – Finalize and Execute Settlements
As creditors accept deals, we finalize binding debt settlement agreements with reduced balances and new repayment terms for you to sign.
Step 5 – Facilitate Lump Sum Payment
We assist with securing financing if needed to access the lump sum payouts to meet settlements. Once funded, we disperse payments to creditors.
Step 6 – Ongoing Support
Even after settlements, we provide support such as consulting on rebuilding credit or negotiating with any remaining creditors.
This tried and true process has helped thousands of business owners resolve debt struggles and regain financial control. And the best part? Our fees only amount to 20-25% of the total debt reduction amount we achieve for you. That means if we secure settlements with creditors to cut your business debts in half, our fees just equal 10-15% of original balances. No expensive retainers or upfront costs.
And if for any reason we do not secure settlements acceptable to you within 6 months, you have the option to discontinue services at no cost. Contact our dedicated team today to discuss your specific situation and debt settlement goals. Our experts can assess your options, weigh pros and cons, and explain the process to determine if debt settlement is your most viable path forward to resolve business debt.
Call 212-210-1851 now to schedule your free consultation or visit Delancey Street to learn more.
Debt Settlement vs. Debt Consolidation
When struggling with high volumes of debt, two options often explored are debt settlement and debt consolidation. But they work in very different ways. Here we outline the key differences:
Debt Settlement
How It Works: Negotiate with creditors to agree on settling debts for reduced lump sum payments that are less than total owed. Typically save 40-60% off balances.
Ideal For: Businesses with severe debt struggles they realistically cannot pay back in full. Want to avoid bankruptcy.
Pros:
- Get large debt reductions.
- Stop collection calls and lawsuits.
- Avoid bankruptcy
- Potentially save on taxes.
Cons:
- Hurt credit score short term.
- Possibility of getting sued before settlements finalize.
- Limited options if creditors won’t negotiate deals.
Debt Consolidation
How It Works: Roll multiple debts into new consolidated loan with lower interest rate to pay off balances in full over time.
Ideal For: Businesses with less severe debt issues that need lower payments but can still afford to repay full balances.
Pros:
- Lower interest rates save money.
- Consolidate multiple payments into one.
- Can improve credit score.
Cons:
- Debts still need to be repaid in full.
- Loan default can put assets at risk.
- Debts discharged in bankruptcy still need to be paid back.
As you can see, the two strategies offer very different solutions. Debt consolidation loans make repaying full balances more affordable through lower interest rates and consolidated payments. Debt settlement secures discounts on the actual debt balances through lump sum settlements, providing greater relief but with the tradeoff of hurting your credit.
Evaluating your specific situation, priorities, and capabilities will determine which path better aligns with your goals. The legal and financial experts at Delancey Street offer free consultations to understand your unique circumstances and provide guidance on whether debt consolidation or settlement would be the most prudent option. Contact us at 212-210-1851 to discuss your business debt situation today.
What Debts Can Be Settled?
For businesses struggling with unmanageable debt, getting balances reduced through settlement can provide much-needed relief. But what specific types of debts can realistically be settled? Here is an overview:
- Business Credit Cards
- Business Term Loans
- Business Lines of Credit
- Accounts Receivable Financing
- Equipment Leasing
- Business Mortgages
- Unpaid Supplier Invoices
- Past Due Payroll Taxes
- Personal Loans Funding Business
- Legal Judgments/Liens
The key point is that when a business is facing genuine financial hardship, most institutional and private creditors have some incentive to negotiate discounted lump sum settlements rather than risk nonpayment, default, or bankruptcy. While not all individual creditors will agree, securing just 1-2 early settlements often has a domino effect on other creditors following suit.
