Most small business owners are familiar with the struggles of debt and are in desperate search of small business debt relief. If you’re one of those people, it’s important to know that you are not alone. On top of that, it is 100% possible for you to get out of debt—often by simply running your business in a more frugal manner. Before you make the detrimental decision to file for bankruptcy, know that there are plenty of other options to consider. Keep reading to find out more about how you can seek small business debt relief.
Consolidation Loans as a Form of Small Business Debt Relief
If you’re seeking small business debt relief and meet a certain set of criteria, you may qualify for a debt consolidation loan offered by a nonprofit lending organization. Typically, these loans come with lower interest rates than those offered by private companies—which means the payments will likely be much easier to afford.
If you’re unable to find or qualify for a nonprofit consolidation loan, however, you may still be able to secure a lower interest rate with private organizations by offering collateral to minimize the risk involved for the lender. With that said, this could mean losing the collateral assets if you are unable to pay back the loan.
A debt consolidation loan offers small business debt relief by allowing you to pay off all of your debt and focus, instead, on a single monthly payment to the new loan. Doing this could be incredibly helpful for business owners who don’t have enough time to manage several payments each month.
With that said, debt consolidation loans can often take at least five years to pay back and will continue to accrue interest while you make your payments. Because of their typically high interest rates, you may not end up saving much money by using this small business debt relief option. If you aren’t able to make up for the loss, a more drastic method may be necessary.
Small Business Debt Relief in Filing for Bankruptcy
If you’ve considered all other options and have decided that filing for bankruptcy is the only way to go, you’re not the only one in this boat. Thousands of small business owners every year end up filing for bankruptcy in similar situations. While bankruptcy isn’t the best option—and you can definitely pursue other options to continue fighting for your business—you shouldn’t feel ashamed for deciding to take this route.
As a small business owner, you have two options when it comes to filing for bankruptcy: Chapter 11 or Chapter 13. These are also referred to as “restructuring” because they allow you to renegotiate the terms of your loans in hopes of easing your financial circumstances. Although both Chapter 11 and Chapter 13 bankruptcies still have serious effects on your credit score, they are designed to be a better option to keep small business owners from filing for the much-worse Chapter 7 bankruptcy.
In most cases, small business owners will qualify for a Chapter 11 bankruptcy rather than Chapter 13. Typically, Chapter 13 bankruptcy is designed for individual debtors, but they may also be available to sole proprietors. If you’re your only employee, you could still qualify for Chapter 13 bankruptcy. There is a catch, though: you can’t file this way if you have more than $1.4 million in debt. You’ll be required to file for Chapter 11 bankruptcy if you have more than $360,000 in unsecured debts or $1.08 million in secured debts.
Whether you file for Chapter 11 or Chapter 13 bankruptcy, you’ll be left with similar results. The judge will assign a new plan, proposed by you, to follow with your creditors to pay back your debts. Once you have proposed this new plan, negotiation will begin through the court with your creditors.
In many cases for larger businesses, this new payment plan may involve selling your nonessential assets. For example, you may be required to sell extra equipment or storefront locations. After the process is complete, you’ll likely be able to continue on as a smaller—but still functioning—business.
You might also be given new payment plans to follow with your creditors. In these cases, your debts will likely not be completely forgiven, but there is a chance that your balances could be reduced if the judge allows it. Otherwise, your creditors could also agree to increase your repayment term, resulting in potentially more affordable monthly payments.
With everything said, there are still several downsides to filing for bankruptcy as a form of small business debt relief. In many cases, business owners end up needing to file again within a few years of successfully filing originally. While your personal credit score may be protected, the credit profile of your business will be severely impacted, which could lead to continued unfortunate circumstances in the future. If you’re lucky enough to be approved at all, any new loans will cost much more due to higher interest rates and stricter borrowing limits.
Small Business Debt Relief Alternatives
Instead of filing for bankruptcy, you may be able to qualify for a debt settlement program to find relief for some of your small business loans. For example, an eligible debt might include any loans taken out through personal credit facilities or any unsecured business loans or credit lines. Generally speaking, most unsecured debts should be eligible.
Although the process may be similar to restructuring through bankruptcy, the effects are much lighter on your credit score. Your creditors will be negotiated with to reduce your debt balances, and you may be able to reduce your debts by a large amount. By following this method, you may be able to settle your small business debts in as little as two years.
Regardless of which option you choose for small business debt relief, make sure you do your research before setting anything in stone. You should consider all of your options before making any decision that could have significant long-term effects on both your business and personal finances.
If you would like to learn more about small business debt relief, Strategic Debt Relief can offer expert advice regarding your situation. Fill out our short application online and get an immediate response, or call us at 877-297-4477 for a free consultation today.