Business Debt Relief Company Reviews: What to Know Before You Sign Up
Business debt can quickly spiral out of control, leaving entrepreneurs overwhelmed and struggling to keep their companies afloat. When facing large amounts of business debt, many owners turn to debt relief companies that promise to negotiate with creditors and settle debts for a fraction of what is owed. But how can you tell if a business debt relief company is legitimate and likely to deliver on its promises?
-This article provides an in-depth look at business debt relief companies, including what to know before signing up with one. We’ll cover common red flags to watch out for, questions to ask any company you’re considering, and what to expect from the debt relief process. Read on for tips on choosing a reputable provider that can really help dig your business out of debt.
How Business Debt Relief Companies Work
Business debt relief companies, also known as debt settlement or debt negotiation companies, offer to negotiate with your creditors to settle your debts for less than you owe. Their services appeal to business owners who are facing large amounts of debt they cannot realistically pay back in full.
These companies will first review your debts and financial situation. They will then contact your creditors and try to negotiate settlements for a portion of what you owe – typically 40-60%, although results can vary widely. The debt relief company usually requires you to make regular payments into an escrow-like account over several months. Once there is enough money built up in the account to make settlement offers, the negotiations with creditors begin.
Debt relief companies charge fees for their services, which are generally a percentage of the total debt enrolled in the program. This means the more debt you have, the more they stand to make in fees. Fees often range from 15-25% of enrolled debt over the course of the program.
-Pros and Cons of Business Debt Relief Companies
Potential Pros:
- Settling debt for less than you owe provides financial relief
- Having a company negotiate for you saves time and hassle
- Debt relief companies have experience negotiating with creditors
- Many creditors will not negotiate with businesses directly
- Can stop collection calls and lawsuits while in a program
Potential Cons:
- High fees can offset any savings from settlements
- Your creditors may refuse to negotiate
- Owing taxes on amount of debt forgiven
- Damage to business credit score
- Lawsuits from creditors are still possible
- Debt relief scams do exist – do your homework!
For any debt relief program to work, you have to have the financial discipline to keep making the monthly payments into the escrow account. It can take many months to see any settlements, so only businesses with steady cash flow are good candidates.
Debt relief can provide an option for struggling business owners, but it’s critical to research companies thoroughly and understand the risks involved before enrolling in any program.
4 Red Flags to Watch Out For
Unfortunately, predatory and scam debt relief companies do exist. Here are some red flags to watch out for:
-1. Claims of eliminating debt for pennies on the dollar
It’s rare for creditors to accept extremely low settlements like 10 cents on the dollar. Claims like this are often exaggerated or outright false. Realistic settlement amounts are usually 40-60% .
2. Requests payment upfront before any services rendered
-Legitimate companies will not ask for large upfront fees before settling any debts. Fees are taken incrementally from the dedicated account.
3. Pressure to sign up immediately
Scam debt relief companies will try to pressure and rush business owners to sign contracts before they have time to thoroughly research the company. Never fall for high-pressure sales tactics.
4. Lack of transparency about process and fees
Ask detailed questions about fees, when settlements might occur, risks involved, and chances of creditor lawsuits. Beware if the company dodges questions or provides vague answers.
Doing your due diligence is crucial before signing up with any company making bold claims about slashing your debt.
Questions to Ask Potential Providers
Carefully vet any business debt relief company you are considering working with. Here are some key questions to ask:
– What is your success rate for settling debts? The company should provide third-party verification of their settlement rates. Industry averages are 30-60% .
– How long is the program? It often takes around 3 years to complete a debt relief program. The company should provide a clear timeline.
– Will my business credit score be affected? Enrolling in debt relief often damages your business credit score. The company should explain this risk.
– Can creditors still sue me? Creditors may still sue for the full amount owed, even during the program. Ask if the company provides legal support.
– What are your total fees and when are they collected? Get fee details in writing. Fees should only be collected incrementally from the dedicated account.
– Can I contact previous clients? Reputable companies will provide references from satisfied small business clients.
Don’t commit to anything until all your questions have been answered clearly and you feel confident the company is legitimate.
What to Expect in the Debt Relief Process
The debt relief process involves several major steps that can take months to years to complete:
1. Consultation and account setup – The company reviews your financials and the debt situation, then sets up an account to hold monthly payments.
2. Documentation and negotiation – You provide details on all debts enrolled. The company starts contacting creditors and negotiating settlements.
3. Monthly payments – You make regular monthly payments into the dedicated account. Payments are used to eventually make settlement offers.
4. Settlements – Once sufficient funds have accumulated, the company approaches creditors with settlement offers and payment is made from the account.
5. Debt free – After all enrolled debts are settled, the program is complete and you are debt-free!
Expect regular contact and updates from the debt relief company throughout the process. Reputable companies will be transparent and keep you informed each step of the way.
Alternatives to Debt Relief Companies
Business debt relief companies are not the only option for overwhelmed entrepreneurs. Here are a few alternatives to consider:
- Debt consolidation loans – Taking out a new loan to pay off multiple debts under better terms.
- Small business bankruptcy – Filing for bankruptcy provides protection from creditors while debts are discharged.
- Debt refinancing – Working directly with creditors/lenders to refinance debts and extend repayment terms.
- Budgeting and expense cuts – Taking an in-depth look at expenses to find areas to reduce spending and free up cash flow.
- Selling assets – Selling unused equipment, vehicles, property or other assets to pay down debt.
- Credit counseling – Non-profit credit counseling provides advice on managing debt and dealing with creditors.
Each option has pros and cons to weigh carefully. Consulting an attorney or financial advisor can help identify the most strategic approaches for your specific situation.
Choose a Reputable Provider
If you do decide to enroll in a debt relief program, thoroughly research potential companies. Look for a reputable provider that:
- Has been in business for several years with proven results
- Is accredited by third-parties like the American Fair Credit Council
- Clearly explains services, fees, and your legal rights
- Provides references from real business clients
Avoid any company that pressures you to sign up right away or asks for large upfront fees. And beware of debt relief scams that overpromise with claims of eliminating your debt overnight.
With high fees and no guarantees, business debt relief companies are not a magic bullet. But partnering with a trustworthy provider can provide a lifeline to business owners who have exhausted all other options. Do your homework to find a legitimate company that can negotiate and settle your business debts – while protecting your rights and finances every step of the way.
- Source for debt relief fee info
- IRS rules on forgiven debt
- Statistics on typical settlement percentages
- Debt relief industry settlement rates
- American Fair Credit Council website