Accumulating high amount of debt and then opting for debt settlement is not a very prudent way of running a business. If you do so, you will never be out of debt and will be perpetually in a situation where you will have to focus more on debt management than business management. Eventually, your business may come to a halt.
If your small business is struggling to meet its obligations, it is quite natural to get tempted by solicitations that offerto settle your debts for a paltry amount. However, this may not be the feasible option always and every time. There are other legitimate methods as well of debt relief available that will also help your business to survive and even grow in debt.
However, you will have to be wary of the debt relief scammers and avoid them because these can leave your businesses in a worse shape and at the same time scarring the reputable lending industry considerably.
Debt management steps to follow
In this regard, you must first know the alternative ways in which you can manage your business debt no matter how frequently you have to take them on. These easy and simple ways are very effective to reduce the financial burden of your small business.
You will also learn how to evaluate different debt relief options and eventually choose the deals that are really good and stay away from those that are too good to be true.
- Managing your cash flow – The very first step that you should take to manage your small business debt is to improve operations. For this you will have to improve your cash flow. You can best do this by taking out some time and take a closer look at your monthly budget to identify the expenses that you can trim or eliminate for the time being.
- Lighten your overhead – You must also review your income and balance it with your expenses at least on a quarterly basis. This will enable you to reduce the cost of overheads. You can take a print out of your accounts payable list to keep it handy and see the accounts that you have paid already. Also consider the thing on which you paid to determine whether or not each of these payments is vital for sustaining your business.
- Credit card statements – You must also review your credit card statements as well from time to time. This is because in most of the times it is seen that small businesses typically sign up for recurring services even though they seldom use them or need them. Pay only for the necessities.
- Staffing needs – In addition to that if you have any payroll then you will need to evaluate your staffing needs as well. You will see that in most of the cases small businesses are over staffed and therefore spend unnecessarily a high amount as employee payments and benefits.
- Be more frugal–The more you save, the more money you have to pay your debts. This is the simple fact and process that you will find in most of the debt settlement feedback that you may read of people who were in similar situation like yours. Make small changes so that you can keep the expenses to a minimum. This will keep your bottom line protected and prevent you from spending more than you have. Best ways to reduce expenses is to go paperless, use more free apps and social media and you may even keep your office at home if you are a sole proprietor.
Lastly, do not take on multiple advances or loans to fund your day to day business operations. These are not quick fix solution but harmful ones instead.
Risks of debt settlement
Debt consolidation is sometimes considered as a useful option to get rid of debt but this should not be confused with debt settlement or debt relief. There are a few specific points to consider for this to know the risk factors of debt settlement.
- There are expensive fees with no guarantees. No debt relief settlement service will guarantee you that they will settle your debts for less.
- There is also no guarantee that your lender will want to work with a debt settlement firm but may prefer to talk to you directly instead.
- There is several scam debt settlement companies that will ask for an upfront payment which is against the October 2010 FTC rule.
- When you stop making payments to your creditors as a part of the debt settlement process you will offset any saving made by the process as the interest and fees will continue to add up with your outstanding balance.
- In addition to that the IRS tax rules will be applicable on the forgiven loan amount thereby reducing your savings, if any even further.
Lastly, consider the cost of lawsuits that the creditors may drag you into, the cost of attorneys and also the hassles if you choose debt settlement as your alternative.
Spotting debt relief scams
Small business debt settlement scams are on the rise and therefore you will need to spot these scan companies for a successful debt settlement. Ideally, the scam companies will make promises that are too good to be true such as reducing your loan by 75% in less than 48 hours. You should stay away from companies that:
- Charges any fees upfront
- Promises a percentage reduction
- Touts a new government programs
- Provide guarantees for settlement
- Asks you to stop communicating with your creditors
- Tells that it can stop debt collection calls and chances of lawsuits
- Suggests for opening a bank account run by third party.
You should look for a company that will prove you with other legitimate debt relief alternatives. Debt consolidation is the best suggestion that these companies will make. This process will not damage your credit score though it will take a longer time than debt settlement. In fact you will be better off to get a loan in future as well as keep your business afloat.