Running a business is unpredictable. No matter how skilled you are in planning and budgeting, there's still a chance that you will need debt assistance at some point. Know the basics regarding debt negotiation and consolidation, in addition to how to choose the right debt relief option for you.

Debt Negotiation

When you run into debt problems, it is important to contact and meet with creditors to inform them of your financial situation. At this time, you should produce a detailed explanation of your cash flow problem, with financial statements so that your creditors understand the severity of the problem. During the meeting you can request to have the interest rate of the loan reduced or the time period for payment extended. Sometimes creditors will reduce the amount of the debt, for example reducing the size of the loan so you would pay $0.60 on every dollar instead of the full amount. When creditors accept a lump sum payment, instead of the agreed-upon payment plan, the size of the loan is usually reduced 40-60%.

Debt Consolidation

The second type of debt reduction is consolidation. In this case, you take unsecured loans such as credit card or vendor debt and consolidate them into one loan with a lower interest rate and lower monthly payments. The consolidated loan can be secured or unsecured, depending on whether or not you have some type of collateral to back the loan. In order to receive a debt consolidation loan from the Small Business Administration (SBA) or a private bank, you will need to produce a statement with your total debt, invoices, and earnings for current and projected earnings in addition to timelines for payment.

Choosing a Debt Relief Company

Debt relief companies can offer assistance in dealing with your business’ debt. The first thing that is important when selecting a debt relief company is its reputation. Apart from consulting with friends and family for recommendations, you can take advantage of resources offered by the Better Business Bureau (BBB) or the attorney general’s office. The second thing to check is how the company gets paid. The best companies will have all of their fees available online or in print for you to examine beforehand. They will also only require payment after successfully negotiating a viable solution with your creditors and take a percentage of the amount of money that you ended up saving. Lastly, look for a debt company that can offer you with a fair number of solutions in regards to obtaining special financing or restructuring your debt. If you are looking for a debt relief company, try taking advantage of these resources:

Declaring Bankruptcy

If the size of your debt is beyond your ability to exercise any other options, you will have to declare bankruptcy. There are two types of bankruptcy that you can file for a small business: Chapter 7 or Chapter 11. While Chapter 7 will require you to liquidate the business’ assets, Chapter 11 and will allow your business to continue operating with some adjustments. You will still have control over the business’ assets, but are required to work with the bankruptcy court to negotiate a payment plan with creditors.

Sources:

1) Wealth Pilgrim: “Small Business Debt Relief—How It’s Done”

2) Business Mart: “Small Business Debt Relief”

3) HubPages: “Small Business Debt Relief Programs”

4) Debt Free Destiny: “Tips on Choosing a Reputable Debt Relief Company”

5) eHow Money: “How to Plan for Small Business Debt Consolidation”