Business Debt Relief Solutions

Refinancing

What it is: Replace existing business debt with a new loan at better terms (lower rate, longer term, lower payment).

When to use:

• Your credit has improved since original loan
• Interest rates have dropped
• Paying high interest (15%+) on business loans or credit cards
• Business is stable/growing

Pros:

• Lower interest rate = massive savings (thousands per year)
• Lower monthly payment = improved cash flow
• No credit damage (if current on payments)
• Can remove personal guarantee (rare but possible)

Cons:

• Requires good credit (650+)
• Origination fees (1-5% of loan)
• Extending term = more total interest (but better monthly cash flow)

Example Savings: Refinance $200K at 18% to 10% = Save $16,000/year in interest

Debt Consolidation

What it is: Combine multiple business debts into one new loan with single monthly payment.

When to use:

• You have 3+ separate debts (credit cards, loans, lines of credit)
• Juggling multiple payment dates and amounts
• Want to simplify finances
• Can qualify for new loan at reasonable rate

Pros:

• One payment instead of 5-10 separate payments
• Often lower overall interest rate
• Easier to manage and budget
• Can include different debt types (cards, loans, lines)

Cons:

• Requires qualification (credit 600+, decent cash flow)
• May require collateral or personal guarantee
• Closing costs/fees
• If you extend term, may pay more total interest

Example: Consolidate 5 credit cards ($75K total at avg 20%) into one loan at 12% → Save $6,000/year

Debt Restructuring

What it is: Modify existing loan terms with current lender (reduce payment, extend term, reduce interest, defer payments).

When to use:

• You can't afford current payment
• Temporary cash flow crisis
• Want to stay with current lender
• Don't qualify for refinancing

Pros:

• Lower monthly payment (sometimes 30-50% reduction)
• Avoid default and collections
• Often free or low-cost
• Maintains relationship with lender

Cons:

• Lender may refuse (they're not required to modify)
• May be reported to credit bureaus as "modified" or "paying under agreement"
• Could pay more total interest over extended term
• Temporary hardship programs expire (6-12 months)

Example: SBA loan payment reduced from $5,000/month to $2,500/month for 12 months (hardship deferral)

Debt Settlement

What it is: Negotiate to pay less than full balance (typically 40-60%) as lump sum or payment plan, rest is forgiven.

When to use:

• You can't pay debt in full
• You have lump sum cash available (or can get it)
• Debt is unsecured (credit cards, term loans, MCAs)
• Already behind on payments or about to default

Pros:

• Pay 40-60% and eliminate debt
• Avoid bankruptcy
• Faster than repayment (settle in 3-12 months)
• Can negotiate on your own (free) or hire professional

Cons:

• Destroys credit (reported as "settled" not "paid in full")
• Forgiven debt is taxable income (1099-C from IRS)
• Must have cash to settle
• No guarantee creditor will accept offer
• Professional settlement companies charge 15-25% of settled amount

Example: Settle $100K debt for $55K lump sum → Save $45K (minus $13K in taxes on forgiveness = $32K net savings)

Chapter 11 Bankruptcy

What it is: Business files bankruptcy, continues operating under court supervision, reorganizes debts via court-approved plan.

When to use:

• Business is viable but debt is unsustainable
• Need to cramdown secured debt (reduce to collateral value)
• Facing foreclosure or repossession
• Multiple creditors won't negotiate
• Need automatic stay to stop lawsuits/collections

Pros:

• Automatic stay stops all collections immediately
• Can cramdown secured debt (save hundreds of thousands)
• Force creditors to accept plan (if court approves)
• Business continues operating
• Debts restructured to affordable payments over 3-5 years

Cons:

• Extremely expensive ($25K-$75K+ for small business)
• Time-consuming (6-18 months to confirmation)
• Public record (all financials disclosed)
• Complex process requires experienced attorney
• Business credit destroyed
• Does NOT discharge personal guarantees (need personal bankruptcy for that)

Best candidate: Business with $500K+ debt, significant assets, viable operations

Subchapter V option: Streamlined Chapter 11 for businesses under $7.5M debt (faster, cheaper: $10K-30K)

Chapter 7 Bankruptcy (Personal)

What it is: Individual (business owner) files personal bankruptcy to discharge personal liability for business debts.

When to use:

• Business is closing or has closed
• You personally guaranteed business debts
• You can't afford to pay personal guarantees
• Creditors threatening to sue you personally, garnish wages, lien home

Pros:

• Discharges personal guarantees (most important benefit)
• Stops lawsuits, wage garnishment, collections
• Fast (4-6 months from filing to discharge)
• Affordable ($1,500-$3,500 total cost)
• Protects exempt assets (homestead, retirement, personal property)
• Forgiven debt is NOT taxable (unlike settlement)

Cons:

• Destroys personal credit (stays 10 years)
• Credit score drops 130-200+ points
• Non-exempt assets may be liquidated
• Doesn't discharge payroll taxes (personal liability remains)
• Can only file Chapter 7 once every 8 years

What's discharged: Personal guarantees, credit cards, personal loans, medical bills, old taxes (3+ years)

NOT discharged: Payroll taxes, recent taxes, student loans, child support

Example: Owner personally guaranteed $250K in business debts. Business closed. Chapter 7 discharges all $250K. Owner keeps home (homestead exemption) and retirement accounts. Fresh start in 6 months.