Top 3 Benefits of Debt Settlement for Owners of Small Businesses

Entrepreneurs operating small businesses opt to apply for debts from financial institutions for obvious reasons. They need the money to conduct their market operations or purchase new equipment. However, they have got to ensure their existing assets are generating adequate income. Only then can they expect to repay the loan installments on time.

Unfortunately, if this is not the case, they are going to find themselves in trouble. Time may eventually come when they find that their existing business debts are becoming unmanageable. They won’t be able to pay the people to whom they owe money on time. In such a situation, they may have no option but to apply for bankruptcy. This can ultimately ruin their reputation and leave an indelible mark on their credit report.

Why should entrepreneurs opt for debt settlement?

Prominent financial experts say many entrepreneurs may have come across the term debt settlement. However, these proprietors generally have a vague idea of how this scheme can benefit their businesses.

The professionals explain it is a strategy these businessmen normally employ to improve their financial condition. The owners enter into negotiations with all their lenders. They request these creditors to reconsider the terms and conditions of their existing outstanding loans. In return, they offer to pay them a substantial amount of money final settlement of their debts.

However, they write off a negligible portion as irrecoverable.The financiers may agree to this arrangement under certain circumstances.  If they do, it can restore the reputation of these owners in the market.

What precautions do these entrepreneurs need?

These professionals also clarify that most businessmen are not in a position to conduct such negotiations. They have got to hire proficient experts specializing in this field. Only then can these owners get the results they are looking for. However, they need to be careful when doing so. In recent years, there have been debt settlement scams.

The last thing they want is to fall victims of such fraudulent activities. The specialists they choose to represent them should have a good reputation in the market. Moreover, they should the adequate skills, knowledge, and experience of helping out entrepreneurs in such situations.

Is debt settlement really worthwhile for entrepreneurs?

The financial experts point out the following three important benefits of debt settlement for entrepreneurs:

  1. Avoid opting for bankruptcy

This is one of the primary reasons why entrepreneurs should pursue a debts settlement scheme. By declaring themselves bankrupt these proprietors actually dig their own grave. It can leave an indelible mark which they won’t be able to erase for the next ten years. During this period, apply for financial assistance or a new credit card is a tall order.

Many people may even tarnish the reputations of these businessmen by accusing them of frauds. This is the last thing these owners want to go through. However, this is not the case with debt settlement. It only remains in the credit report of such entrepreneurs for a period of 7 years.

  1. Instant relief from unmanageable debts

Entrepreneurs need to understand the true objective of debt settlement. It is generally unwise of them to accumulate business loans without having the means to settle such an obligation. This debt relief scheme allows them to repay their lenders without any hassle. It doesn’t put undue pressure on their existing financial condition.

To get more credible advice on this issue, these owners should not hesitate to go for for valuable guidance. Once they reach an agreement with their creditors, they can become debt-free in a short period. This is generally not possible under the normal process. The proprietors should keep this important fact in mind.

  1. Prompt repayment of existing debts

Debt settlement allows businessmen to clear all their outstanding debts within a very short time. In most cases, this period is generally with 3 to 4 years. This is a far cry to other debt relief solutions available in the market. Under the normal circumstances, these entrepreneurs may take decades paying people whom they owe money.

This can further aggravate their financial conditions and even jeopardize their market operations. It is a fact which these entrepreneurs need to consider seriously. A situation may arise where they won’t be able to get money from the market. In such a case, they find it virtually impossible to run their organizations.

Fallout of debt settlement

Entrepreneurs need to understand an important fact about debt settlement. Business owners who opt for this debt relief scheme take years to rebuild their creditworthiness. Only then do reliable lenders consider these proprietors eligible to apply for their loans. Even then there is no hard and fast rule they’ll get such financial assistance. This is the harsh reality which they have to accept whether they like it or not.

Debt settlement also has certain tax implication which almost all entrepreneurs can’t avoid at any costs. Their creditors have to file a return with the Internal Revenue Service (IRS) in Form 1099-C. This document contains a list of all the loans they cancel during the financial year. Under the laws of the country, borrowers are still liable to taxes of such forgiven debts. The tax authorities regard as a deemed income these individuals earn during this period. As a result, the proprietors still need to pay taxes on loans they settle under the debt relief scheme.


Debt settlement can work wonders for entrepreneurs in the long-run. It can set them free from the vicious cycle of unmanageable loan repayments. This can go a long way in improving their financial condition. It also helps to restore their reputation in the market in the eyes of the public. They just need to go through the above three important advantages of this scheme. It can clear any doubts they may have in their minds on the issue. However, these proprietors still need to keep in mind the consequences they are likely to face. They still got to pay the taxes on loans their creditors cancel or write off.

Kelly Wilson

Kelly Wilson is an experienced and skilled Business Consultant and Financial advisor in the USA.She helps clients both personal and professional in long-term wealth building plans. During her spare time, she loves to write on Business, Finance, Marketing, Social Media. She loves to share her knowledge and Experts tips with her readers.

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