What to Do if You Have Too Much Business Debt

What to Do if You Have Too Much Business Debt

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Many businesses use credit and debt to expand, buy equipment, and hire additional employees so they can take on bigger projects and grow.  But what should you do if you’ve taken new credit from vendors who offered it, developed business debts, used personal credit cards, responded to ads for quick money, and find yourself drowning in debt because your business hit bumps and roadblocks along the way?

Here’s how to specifically determine if you are carrying too much business debt and, if you are, whether you can address it yourself or need professional guidance.

If you are carrying too much debt, one option that might help you avoid bankruptcy is debt restructuring (DR)—which is the process of negotiating new terms with your existing creditors. The goal is to work with your creditors and pay them using a budget that you can consistently afford and stay in business. By openly communicating with your creditors and offering reasonable payment terms based upon those communications, it is possible to avoid lawsuits and bankruptcy.

Does Your Company Need Debt Restructuring?

If, you are experiencing any of these warning signs, you might need DR:

  1. Collection agencies are calling or you are being sued
  2. Checks you write are bouncing
  3. 30% or more of your debts are past due or about to become past due
  4. You are paying smaller creditors before larger creditors
  5. You’ve negotiated with these creditors before and are having trouble keeping to the plan
  6. You delay paying debts that are older

Questions to Ask Before Restructuring

  1. How much time do you have available to devote to a restructuring?
  2. Will your business be profitable after a restructuring?
  3. Is your problem minor, moderate, or severe?
  4. Which debts should be restructured?
  5. Are you ready to negotiate on the phone and in writing, by making offers and counter-offers?

Restructuring on Your Own vs. Seeking Professional Help

Whether you restructure on your own or get help from professionals,  it all comes down to your available cash flow. As a firm that has helped more than 11,000 businesses avoid bankruptcy and pay creditors, here are the guidelines we follow:

  • If you can afford 33% of your debt per month, over three months, you can handle the creditors yourself.
  • If you can afford 17% of your debt per month, over six months, you can handle it yourself, but it will be more difficult and more time consuming.
  • If you can afford 8% per month, you can still do it yourself but you will need strong guidance and templates for offers, letters, and calculations. It could be like taking on a part-time job.
  • If you can’t afford 8% per month, consider seeking professional help.

Things to Consider

Your credit score will be affected by debt restructuring.  If you negotiate or pay anything other than the agreed upon terms, a creditor may add a negative report.  But if you are considering debt restructuring, there is a good chance your credit score has already taken a hit.  Keep in mind, the goal is to save your company, not your credit rating.

Related Reading: How Debt Utilization Affects Your Personal Credit Scores

When to consider bankruptcy:  Most debt restructuring plans can achieve successful resolutions for as little as 2% to 5% of the total debt load per month. If your budget is less than these amounts, talk to a bankruptcy attorney and examine all of your options.

This is just an overview of debt restructuring as a solution for your business. There is much more to consider and learn about  the process.  You can see this free guide “How To Pay Business Debts You Can’t Afford,” to find out how the process works and determine how to best approach your situation.


About Corporate Turnaround [CT]: Since 1998, Corporate Turnaround has helped over 11,000 businesses get out of debt and pay creditors on a budget they could afford.  CT has an “A” rating with the BBB and is the Debt Management Partner for both SCORE and the ASBDC (Association of Small Business Development Centers).

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About the Author — Charles Evans is Director of Business Development for Corporate Turnaround in Paramus, N.J., DontDeclare.com. For over 14 years, he has helped train thousands of business counselors with both SCORE and the ASBDC [Association of Small Business Development Centers] in business debt management. He also serves on his regional Small Business Development Center Board and served as Executive Chair for the Bergen Workforce Development Center. He can be reached at Cevans@Dontdeclare dot com

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