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Using Debt Management Programs to Pay Off Business Debt

By Spodek Law Group | February 20, 2024

Using Debt Management Programs to Get Your Business Out of Debt

Dealing with business debt can be really stressful. I totally get it – trying to juggle payments, interest rates, and creditors calling you all the time is straight up overwhelming. You just want to get your business back on track financially, but it can feel impossible to dig yourself out of debt. The good news is there are options out there to help, and debt management programs are one route that could work.

What Are Debt Management Programs?

Debt management programs (DMPs) are payment plans set up through credit counseling agencies to help people and businesses consolidate debts and pay them off over time. Basically, the credit counseling agency works on your behalf to negotiate with your creditors to reduce interest rates and get you on an affordable monthly payment plan to pay down what you owe over 3-5 years.

The benefits are that you make one monthly payment to the credit counseling agency instead of juggling multiple payments, you get much lower interest rates, and some creditors even agree to waive late fees and over limit fees. This can really help simplify things and make paying off your debt more manageable.

How Do Debt Management Programs Work for Businesses?

The process is pretty straightforward:

  1. You enroll with a credit counseling agency. This is a key first step, as you need to work with an accredited, reputable agency to set up your DMP. Some top agencies are Money Management International, GreenPath Financial Wellness, and Clearpoint Credit Counseling Solutions.
  2. The counselors review your financial situation. They will take a close look at your revenue, expenses, assets, liabilities, credit accounts, interest rates, etc. to get the full picture. This also helps determine eligibility for a DMP.
  3. The counselors contact your creditors to negotiate. Based on your situation, the counselors reach out to all your creditors (banks, credit card companies, suppliers/vendors, etc.) to negotiate reduced interest rates, waived fees, and a consolidated payment plan that works with your budget.
  4. You make one monthly payment to the agency. Instead of keeping track of 5, 10 or more payments every month, you send one payment to the credit counseling agency and they distribute funds to your creditors accordingly. This makes things way more manageable.
  5. They provide ongoing support. Your counselor will check in periodically to see how things are going, offer guidance if you hit any bumps in the road, and continue negotiating with creditors as needed. They are your partner through the whole debt repayment process.

What Types of Business Debt Can These Programs Handle?

Common types of business debt that get rolled into DMPs include:

  • Credit cards – This is often a major source of debt small businesses take on, from purchases to funding growth. Consolidating cards into a DMP can really help.
  • Equipment financing loans – Loans to purchase hardware, machinery, fleet vehicles and other equipment are another prime source of debt.
  • Business lines of credit – Lines of credit with banks or online lenders can pile up interest quickly. Folding them into a DMP makes sense.
  • Past due taxes – If back taxes are weighing your business down, your counselor can include them in negotiations with the IRS.
  • Accounts payable – Money owed to suppliers and vendors for inventory, materials, parts, services, etc. can be managed through a DMP.

Basically, any debt your business has taken on and is struggling to repay can potentially be included in a debt management program. Your specific situation will determine eligibility when you speak to a credit counseling agency.

What Are the Benefits for Small Businesses?

There are a number of ways enrolling in a debt management program can help small businesses recover from excessive debt:

  • Lower interest rates – Through negotiations with creditors, interest rates can be reduced substantially, saving you a lot in finance charges.
  • Single monthly payment – Instead of tracking multiple payments per month, you make one payment to the counseling agency for distribution.
  • Improved cash flow – With lower monthly payments, you free up cash flow to reinvest in operations.
  • Customized budgeting – Counselors will help analyze expenses and create a realistic budget and payment schedule.
  • Halted creditor harassment – The counseling agency handles communicating with creditors for you, stopping harassing calls.
  • Focused recovery – With a clear path to paying off debt, you can focus energy on boosting revenue.
  • Avoid bankruptcy – By addressing debts now, you may avoid having to file business bankruptcy down the road.

What Steps Should You Take to Start a Debt Management Program?

If a debt management program seems like the right solution for your business’s debt situation, here are the steps to enroll:

  1. Contact 1-2 reputable credit counseling agencies – Let them know you are interested in debt relief options for your business. Be ready to answer questions about your current financials.
  2. Determine if you pre-qualify – The counselor will assess your situation quickly to determine if your debts and income make you a good candidate for a DMP.
  3. Submit your credit applications and documentation – Formal enrollment requires paperwork to evaluate your debts, assets, revenue, expenses, tax situation etc. in detail before negotiations begin.
  4. Review the customized proposal – Once the counselor analyzes your full situation, they will present a detailed DMP outlining proposed reduced repayment terms.
  5. Finalize and agree to program terms – With a proposal you are comfortable with, formally agree to enroll in the debt management program.

From there, it jumps right into the process of your counselor contacting creditors, negotiating new terms, and getting you started on affordable payments to take control of your debt. Most businesses start seeing the benefits in the first 1-2 months.

What Are the Downsides or Risks?

While debt management programs offer significant benefits, there are a few potential downsides to consider as well:

  • Credit score impact – Enrolling in a DMP may lower your business credit score initially as accounts get closed and terms change. Over the long run as debts decrease, your score should improve.
  • Fees – Credit counseling agencies charge fees for DMP services, typically $25-50 per month. While fees vary by agency, they are quite reasonable for the assistance provided.
  • Creditors won’t negotiate – In rare cases, a creditor simply won’t negotiate terms even with counselors advocating on your behalf. This may require considering other options.
  • Debts not included – Not all debts can be addressed through a DMP, such as mortgage, auto loans and business loans. These would still require separate payments.

For the most part however, the extensive benefits outweigh the risks as long as expectations are managed. And counselors will advise if a DMP is not the most appropriate strategy for your situation.

Could Debt Settlement or Bankruptcy Be Better Options?

Debt management programs offer a preferable path to freedom from excessive debt for most small businesses. But in some instances, debt settlement or bankruptcy may be unavoidable or even better strategies.

Debt Settlement involves negotiating lump sum payoffs of debts – often at 50% or less of what you owe. This does more damage to credit but eliminates debt. Bankruptcy fully wipes debts clean with court oversight, but at the cost of assets and a long-term hit to business credit.

Here are some scenarios where these other options may be better:

  • DMPs fail and creditors refuse to negotiate – Settlement or bankruptcy may be only options
  • Business revenues have dropped so severely that even DMP payments are not affordable.
  • Assets need protection that bankruptcy filing provides.
  • Owners have personal liabilities they also need wiped out.

As a small business owner, you have to honestly assess your situation and ability to repay debts over time through a DMP. Your credit counseling agency will also guide you if another path is recommended. But in many cases, a debt management program should be the first approach before considering more severe options.

Finding the Right Credit Counseling Agency Matters

As you can see, enrolling with an accredited, reputable credit counseling agency is the essential first step to launching a debt management program. The right agency will make the process of consolidating your debts and negotiating with creditors smooth and effective.

Look for an agency that:

  • Has been operating for several years with proven success supporting small business debt relief
  • Employs certified credit counselors experienced with business debt scenarios
  • Is accredited by organizations like COA (Council on Accreditation) or NFCC (National Foundation for Credit Counseling)
  • Offers full transparency into their fees, terms and success rates
  • Customizes proposals based on your unique business situation
  • Provides complimentary consultations and advice even if you do not immediately enroll
  • Has positive reviews from past small business clients

While most agencies have similarities in program structure, customer service and effectiveness in negotiations can vary widely. Do your due diligence to find the right match. It makes all the difference in successfully eliminating business debt.

Take Control of Your Business Finances with a DMP

Dealing with substantial business debt is not just frustrating and stressful – it can feel like you have lost control of your financial future. But know there are always solutions, and debt management programs are specifically designed to rescue small business owners from debt. With an experienced credit counseling agency negotiating reduced payments and rates for you, a DMP simplifies paying off what you owe over time so you can get back on stable ground.

If business debts have started piling up unmanageably, don’t wait to get help. The sooner you start eliminating high interest accounts and creating breathing room in your budget, the faster you will see the light at the end of the tunnel. With one monthly payment and a clear path to freedom from debt, you can focus energy back on business growth rather than survival. Regain control with a professional debt management program designed for your success.

Resources

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