The Truth About Business Debt Settlement Programs

If it sounds too good to be true, it usually is. Even though Business Debt Settlements offer a lower payment to cash-strapped business owners, the truth is that most merchants are not able to complete the terms and, sadly end up shutting their doors before they’ve paid enough money into a reserve account to even make an offer to their lenders. The debt settlement business model is notorious for not keeping the best interests of small businesses in mind, yet they happily keep all the fees business owners pay into the program. Before you take the drastic step into the dark world of debt settlements, do your business a favor and consider all the facts, as well as the alternatives. Here are some important details to consider:

  • Upfront Fees—All debt settlement programs charge upfront fees of at least 25% of the enrolled debt amount and will not begin any type of negotiation until their fee is paid IN FULL. This means that all payments for the first 45-90 days are going to the debt settlement company and they are not negotiating with the lenders.
  • Settlements — Note that you will be making 6 to 9 months of payments into the reserve account to build up enough money to make an offer to the lender. Most merchants never make it that far because the lender nearly always takes legal action to collect on the debt. Additionally, the settlement company will charge you another fee of 10% up to 25% as a success fee for any settlement that is negotiated–meaning that 35% to 50% of the money paid into the reserve account has gone to fees.
  • Aggressive Lenders— These debts are not issued by a conventional bank and they are not credit card debts—these companies gave you CASH and the transaction is not considered a loan so there are no legal protections in place for the merchant. These lenders are not going to sit idly by and wait for six months to get paid 50 cents on the dollar. They are going to smash and grab any and all assets they can and take legal action against the merchant and if there is a personal guaranty on the loan will come after personal assets.
  • Negative Effect on Credit— Judgments, liens, “settled for less than owed” are the marks the merchant will find on their credit report. Forget about getting any type of regular or conventional financing (SBA, Line of Credit) for the next few years. You have proven that you can’t and won’t pay your obligations.
  • Lack of Communication— Contrary to the marketing hype, the debt settlement company is not talking to your lenders and they are not working out a restructured plan to pay back the debt. What they ARE doing is collecting upfront fees for the first 45 to 90 days…then they are waiting until the debt is charged off so they can try and negotiate 50 cents on the dollar. The unfortunate consequence of this business practice is the destruction of your business credit—and quite possibly your business.

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Contrary to the marketing hype, the debt settlement company is not talking to your lenders and they are NOT working out a restructured plan to pay back the debt.

Alternatives to Debt Settlements

  • Debt Restructuring
    • Business Debt Restructuring is the process of rearranging payment schedules, negotiating interest rates and lowering payment amounts. Click here to read more.
  • Business Loan Modifications

Even though Debt Settlements offer a lower payment to cash-strapped business owners, the truth is that most merchants are not able to complete the terms and, sadly end up shutting their doors before they’ve paid enough money into a reserve account to even make an offer to their lenders.

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