Debt can be owed to many different companies. It can come from utilities, service providers, landlords, suppliers, and banks or private lenders. First, it is important that business owners alert the creditors that the business is being closed. This could reduce the amount of liability owners carry.
After notifying creditors, owners should make plans to get rid of these debts. Options include paying the bills in full, settle the bills for less than the full payment, or file for bankruptcy. No matter what, owners should not ignore their debt and hope that creditors will ignore it as well. Collection agencies, repo men, lawyers, and lawsuits will haunt owners for several years.
Most likely, business owners will not be able to choose the first option to pay all the bills in full. This means owners need to negotiate their business debt to get a settlement. This depends on the type of creditor, the legal portion of the debts, and how severe the creditor acts.
If the business is an LLC or corporation without any debts personally guaranteed, then the creditor cannot collect from the business owner personally. This means creditors will be able to accept a small portion of what the business owes as the full payment. If the business owner owes debt personally, or if a friend cosigned for it, the creditors have more leverage.
When business owners can pay 30% to 70% in cash on the barrelhead, it is worthwhile to try to settle the debt. Creditors understand that they have a hard time collecting their money once the business has been closed. Therefore, they will agree to settle debt for 50, 60, or 70 cents on the dollar. Sometimes business owners can settle for less when hiring a consultation company.
It could make very little difference if business owners settle a couple of small debts while leaving the larger ones unsettled. Owners should make sure to tell all the creditors that the offers are contingent upon all creditors agreeing to settle debts.
Business owners need to prioritize their debts. If there are any loans that were personally guaranteed, these should be settled first. After paying loans that owners are personally liable for, any wages and benefits owed to employees should be paid. Any money left over should be paid to suppliers, credit companies, lease deficiencies, and bills from random expenses.
There are a few steps to take when settling debt. Owners should explain the business cannot pay the debts and they can offer partial payments. If creditors agree, then owners should get them to sign a release for the entire amount in exchange for the partial payment. Without a release, there is no proof that the debt has been settled. Creditors could sue for the remainder of the debt.
The last option for debt negotiation is filing for bankruptcy. This allows owners to wipe out debts there is no hope in paying. If a business owes a lot of debt that is unable to paid, bankruptcy is a fresh start. When owners feel like this is their only option, he or she should debate if bankruptcy or liquidating the business assets is a better decision.
Business debt can ruin an owner’s finances very easily. Understanding the ways to negotiate and resolve the debt will help owners save themselves from ruin. If debt is settled generously, business owners can actually have a second chance at success with a future business.