Dealing with significant business debt can be incredibly stressful and make it difficult to focus on running your company. When facing large amounts of debt, many business owners consider debt consolidation or debt settlement to try to find a manageable solution. But it’s important to understand the key differences between these two debt relief options before deciding which path to take.
Business debt consolidation involves taking out one new loan to pay off multiple existing debts. The goal is to simplify debt payments by rolling several debts into one, ideally with a lower monthly payment and interest rate.
Popular types of debt consolidation loans for businesses include:
The main benefits of debt consolidation include:
However, there are also risks such as:
So while consolidation can provide short-term relief, it’s important to consider the long-term costs.
With debt settlement, you work with a debt settlement company to negotiate directly with creditors to settle accounts for less than what is owed. The goal is reducing debts by 20% to 60% typically.
The debt settlement process involves:
This can resolve business debts while paying only a percentage of what is owed. However, there are risks to understand as well:
So while debt settlement can eliminate debt, it can also further damage business credit and finances if not done properly.
When deciding which option may be best for your small business, consider these key differences:
|Consolidates multiple debts into new loan
|Negotiates with creditors to settle debts for less than owed
|Typically need good business credit
|Business credit score less important
|Lower interest rates possible
|Interest continues accumulating during settlement period
|Monthly payments continue
|Stop monthly payments to creditors
|Resolve debt while keeping business assets
|Potential for legal action from creditors
|Total repayment could be higher over loan term
|Total savings of 20% to 60% of debt if successful
Debt consolidation loans tend to work best for businesses that:
If your business matches this description, reducing interest rates and consolidating payments into one monthly bill can provide flexibility and simplicity.
Debt settlement often makes more sense for businesses that:
If your business is struggling severely financially, settling major accounts for pennies on the dollar may be the most viable path back to stability.
As you can see, business debt consolidation and settlement take very different approaches to resolving debt troubles.
The right option depends entirely on your specific situation in terms of business health, assets, revenues, credit score, and type of debts owed.
Before deciding on consolidation or settlement, be sure to :
While being in significant debt is an overwhelming and scary situation, taking the time to make an informed decision about debt relief can save your business. Consult experts, understand all viable options, and determine what realistically aligns best with your company’s financial circumstances and future goals.
For more information on business debt consolidation or settlement options to deal with money troubles, helpful resources include:
Articles and Guides
Business Debt Relief Companies
Legal and Financial Advisors
Dealing with substantial business debt is difficult, but understanding all your options is the first step towards finding the right solution. Take the time to evaluate debt consolidation loans and settlement plans in relation to your specific situation. With professional guidance and smart planning, you can resolve debt while saving your business.
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