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Your Ultimate Guide to Business Debt Settlement Companies

What is Business Debt Settlement?‍

Business debt settlement is a process where a company negotiates with creditors to settle outstanding debts for less than the full amount owed. It provides an alternative to bankruptcy or other debt relief options.‍

With a business debt settlement company, they work to negotiate reductions in the total debt owed to creditors. The debt settlement company, like us here at Cain and Daniels, contacts each creditor to try to get them to agree to accept a lump sum payment that is less than the original balance, effectively settling the account for a discount.‍

For example, if a business owes $100,000 across multiple credit accounts, the debt settlement company may be able to negotiate with creditors so that the total debt can be resolved for $60,000. This allows the business to settle debts and become debt-free by paying a reduced amount compared to the original balances.‍

The key distinction between debt settlement and bankruptcy is that with settlement, the business avoids filing for bankruptcy and foreclosure of assets. Settlement enables the business to pay back a negotiated, reduced amount over time until debts are resolved. Bankruptcy usually involves liquidating assets and a court-mandated repayment plan.‍

Debt settlement also differs from debt consolidation. With consolidation, debts are combined into one new loan with one monthly payment. The total balance is not reduced, only restructured. Debt settlement actually reduces the total amount owed through negotiated discounts with creditors.‍

By settling debt for less than owed, businesses can resolve financial challenges and creditor calls while avoiding bankruptcy. Settlement provides an alternative route to becoming debt-free.‍

Pros of Business Debt Settlement‍

Business debt settlement can offer several advantages for companies struggling with high debt burdens. Here are some of the biggest potential pros of using debt settlement services:‍

Settle Debt for Less Than Owed‍

The primary benefit of debt settlement is the ability to negotiate and settle debts for an amount less than the full balance owed. Debt settlement companies have teams of experienced negotiators who can work with creditors to reduce the total debt burden. It’s not uncommon for business debts to be settled for 30-60% less than the original balance through these negotiations. This can equate to tens or hundreds of thousands in savings for the business.‍

Avoid Bankruptcy  ‍

For businesses facing severe cash flow issues, bankruptcy may seem like the only option. However, this can have long-lasting detrimental impacts. Business debt settlement provides an alternative route to find relief without the need to file for bankruptcy. While settlement will still impact credit, it’s viewed much more favorably than bankruptcy by future lenders and creditors.‍

Become Debt Free Faster‍

With the reduced payoff amounts negotiated through debt settlements, businesses can repay debts much faster compared to minimum monthly payments. Rather than getting stuck in a debt trap for years, settlement provides a path to becoming debt-free in a condensed time frame, usually between 2-4 years. This allows businesses to start rebuilding their financial health more quickly.‍

Cons of Business Debt Settlement‍

Debt settlement can provide relief, but there are some potential downsides to be aware of:‍

Damage to Business Credit Score

When you stop making payments on your business debts, this will negatively impact your business credit score. Missed or late payments can cause your score to plummet 100 points or more. Even after settling debts, your score may take years to fully recover.‍

Tax Implications 

The IRS may view forgiven debt through settlement as taxable income. You may have to pay income tax on the amount of debt reduced by the settlement. However, the IRS does provide exceptions in some cases of insolvency. Consult a tax professional to understand any tax obligations.‍

Lawsuits from Creditors

When you stop making payments, creditors have the right to sue for the missed payments and full repayment. Debt settlement companies try to negotiate settlements before a lawsuit occurs, but legal action is still a risk. Getting served with a creditor lawsuit can be stressful and perpetuate financial issues.‍

Overall, weigh these potential downsides against the benefits before pursuing a business debt settlement company. While it can provide relief, it’s not without risks. Consulting with legal and financial advisors can help make an informed decision.‍

Business Debt Eligible for Settlement‍

To qualify for debt settlement, your business must meet certain requirements regarding the types of debt owed, minimum debt amounts, and proof of financial hardship.‍

Types of Debt Qualified

Most types of unsecured business debt are eligible for settlement, including:‍

  • Business credit cards
  • Lines of credit
  • Accounts receivable financing 
  • Outstanding invoices
  • Business loans from banks/online lenders

‍Secured debts like equipment financing or commercial mortgages generally do not qualify. ‍

Minimum Debt Requirements

Many debt settlement companies require your business to owe at least $10,000 – $15,000 in debt to begin a program. The more debt you have, the more potential for settlement savings. However, here at Cain and Daniels there is no minimum for us to take your case. We are able to work with any business that is going through debt issues.‍

Proof of Financial Hardship

You’ll need to demonstrate your business is facing legitimate financial struggles and cannot realistically pay back debt as agreed. This can be shown through:‍

  • Tax returns showing declining revenue 
  • Bank statements evidencing cash flow issues
  • Proof of hardship like loss of a major client/contract.

‍Settlement companies want to see your business is truly in need of debt relief and not gaming the system. Provide documentation to back up hardship claims.

Costs and Fees of Settlement Companies ‍

The costs and fees of debt settlement companies can vary significantly. Most companies use one of two fee structures:

Percentage Fees

This model charges a percentage of the total enrolled debt amount as the fee. Percentage fees often range from 15% to 25% of the total debt enrolled. For example, for $100,000 in enrolled debt, the fee could be $15,000 to $25,000. The fee is spread out over the course of the program.‍

Flat Rate Fees 

In this model, the company charges a flat rate fee based on the amount of debt enrolled. For example, a company may charge $1,000 in fees for every $10,000 in debt enrolled. Flat fees typically range from 10% to 20% of the total debt amount.‍

The average fees charged by most debt settlement companies tend to fall between 15% to 20% of the total debt enrolled. This means that for $100,000 in debt, a company may charge around $15,000 to $20,000 in fees over the course of the program.‍

However, businesses need to watch out for hidden costs and fees that can drive up the overall price significantly:‍

  • Monthly maintenance or service fees
  • Early termination fees
  • Insufficient funds fees
  • Late payment fees
  • Legal fees
  • Taxes on forgiven debt

‍Reputable companies will be transparent about their full fee structure like us here at Cain and Daniels.. Make sure to understand the total costs before signing up for any debt settlement company.‍

Choosing a Reputable Business Debt Settlement Company‍

When searching for a business debt settlement company, it’s important to vet each option thoroughly. There are a few key factors to look for when evaluating companies:‍

Accreditations and Certifications

The American Fair Credit Council (AFCC) is the main trade association for the debt settlement industry. AFCC members must adhere to a strict code of conduct. It is beneficial to work with companies that are AFCC accredited. The International Association of Professional Debt Arbitrators (IAPDA) is another certification that indicates ethical practices.‍

Customer Reviews and Ratings 

Search for reviews on third-party sites like Trustpilot and the Better Business Bureau. Look for consistent positive feedback over many years. Be wary of companies with no reviews or overwhelmingly negative comments. A good company will have a 4-star rating or higher.‍

Transparent Fees

Avoid any company that is not upfront and clear about their entire fee structure, including any hidden costs. Fees should be presented as a flat rate or percentage of enrolled debt. Make sure you understand exactly what you’ll pay before signing up.‍

The best business debt settlement firms will hold these certifications and have a proven history of satisfied customers. Taking the time to thoroughly research companies can help you find one that is ethical, experienced, and aligned with your needs.‍

Alternatives to Debt Settlement‍

Debt settlement is not the only option for businesses struggling with debt. Here are some alternatives to consider:‍

Cain and Daniels: Alternatives to Business Debt Settlement

Debt Consolidation Loans‍

Debt consolidation loans allow you to roll multiple debts into one new loan with a lower interest rate. This can help simplify repayment and lower monthly payments. However, business debt consolidation extends the repayment period, leading to more interest paid over time. It also requires creditworthiness and collateral.‍


  • Lower monthly payments
  • One payment vs multiple 
  • Lower interest rate


  • Credit score requirements
  • Extended loan term 
  • More interest paid over time

Credit Counseling and Debt Management‍

Non-profit credit counseling agencies can negotiate with creditors to reduce interest rates and create a debt management plan (DMP). DMPs have scheduled payments over 3-5 years.‍


  • Lower interest rates
  • One monthly payment 
  • Avoid bankruptcy 


  • Damage to credit score 
  • Payment plans often 5+ years
  • Creditors not obligated to accept new terms


Filing business bankruptcy liquidates assets to pay debts under court supervision. Chapter 7 bankruptcy discharges eligible debt while Chapter 11 allows reorganization.‍


  • Eliminate eligible business debts
  • Stop creditor harassment 
  • Allows business to continue operating 


  • Damages business credit score  
  • Legal fees and court costs
  • Public legal proceeding 
  • Risk of liquidation

Preparing for Debt Settlement‍

Preparing for debt settlement is a critical step that can determine the success of the process. Here are some important things to consider:‍

Budgeting and Saving‍

  • Take a detailed look at your income and expenses to create a realistic budget. Identify areas where you can cut back on spending to free up funds.
  • ‍Set up a separate savings account and automate transfers to it. This account will be used to save up for settlement fees and payments. Experts recommend saving at least 20-50% of total debt owed.
  • ‍Make budget adjustments as needed. For example, reduce restaurant spending or pause non-essential subscriptions. Every dollar saved can help.
  • ‍Avoid taking on new debt obligations if possible. New debt will undermine the debt settlement process.  
  • ‍Stick to the budget diligently. It may involve some sacrifices but is essential.

Negotiating Directly with Creditors‍

  • Before starting debt settlement, consider contacting creditors directly to negotiate reduced or alternate payment plans.
  • ‍Explain your financial hardship and inability to pay. Provide documentation if required. 
  • ‍Negotiating directly saves the settlement fees charged by debt settlement companies. Even a small reduction in interest rates or waived fees can help.
  • ‍Be persistent and try multiple times, escalating to managers if needed. But avoid too frequent contacts that could be seen as harassment.
  • ‍If the creditor refuses to negotiate, don’t get discouraged. Debt settlement programs can still help.

Understanding the Credit Impact‍

  • Debt settlement often has a negative impact on your credit score, especially in the first 12-24 months. Missed or reduced payments will be reported.
  • ‍Accounts settled for less than owed are typically marked “settled” on your credit report.
  • ‍Don’t let the credit score drop derail your plans. Focus on becoming debt-free and you can rebuild credit later.
  • ‍Be prepared for creditor legal action like a lawsuist or bank garnishment in response to missed payments.
  • ‍Consult a credit counselor to develop a plan to recover your credit over time. Continued responsible money management is key.

Preparation and planning is crucial to making debt settlement work for your business. Follow these steps to set your debt settlement efforts up for success.‍

Rebuilding Finances After Settlement‍

After completing a business debt settlement program, the focus shifts to rebuilding your financial health and avoiding future debt issues. Here are some important steps to take:‍

Improving Your Credit Score‍

  • Settling debt for less than the full balance will likely damage your business credit score. However, there are ways to rebuild it over time:
  • ‍Continue making on-time payments for any remaining debts. This shows creditors you are reliable.
  • ‍Limit new credit applications until your score improves. Too many new accounts can be seen as risky.  
  • ‍Request and review your credit reports. Dispute any errors with the credit bureaus. 
  • ‍Consider secured credit cards or credit builder loans to add positive information.
  • ‍Wait for settled accounts to fall off your credit reports (usually 7 years).

Avoiding Future Debt ‍

  • To avoid needing debt relief again, implement better financial practices:
  • ‍Track income and expenses closely each month. Identify waste and create a realistic budget.
  • ‍Build an emergency fund with 3-6 months of operating expenses. This provides a cushion for unexpected costs.
  • ‍Hold off on large purchases that require financing. Wait until you can pay in cash.
  • ‍Review contracts carefully and shop around before taking on new debt. Don’t overextend.
  • ‍Pay down highest interest debt first when possible to save on finance charges.

Financial Planning‍

  • Work with an accountant or financial advisor to create a long-term plan:
  • ‍Project future income and expenses. Estimate taxes, payroll, loan payments, etc.
  • ‍Set specific financial goals for your business, like revenue targets or profit margins.
  • ‍Look for ways to increase sales and profits to meet your goals. Expand products or services.
  • ‍Consider ways to reduce costs, like renegotiating vendor contracts or streamlining operations.
  • ‍Develop a realistic timeline for paying off all remaining debt. Don’t take on new debt without a plan.

Proper planning and diligent money management after settlement can help secure your business’s financial future. Be patient, as it takes time to rebuild credit and finances after debt relief.‍

FAQs About Business Debt Settlement‍

Frequently asked questions provide clarity on some key aspects of business debt settlement programs. Here are answers to some of the top questions business owners have when considering debt settlement.‍

How long does business debt settlement take?

The length of a business debt settlement program can vary quite a bit depending on the total amount of debt owed and the number of creditors involved. However, most programs take between 2-4 years to fully complete or as quickly as 2-3 months.. Our Cain and Daniels settlement specialists will prioritize accounts with the highest interest rates first. You can expect the process to take longer for larger debts over $100k.‍

Can business debt settlement stop collections? 

In some cases, yes. Once a creditor agrees to settle a debt, the account should be marked as ‘settled’ and collections should stop. However, it’s important to get any settlement agreement in writing from the creditor. If collections continue on an account that’s been settled, contact the creditor to resolve the issue.‍

Is business debt settlement legal in all states?

For the most part, yes. However, a few states including Connecticut, Kansas, and North Carolina prohibit debt settlement companies from charging any upfront fees before settling debts, which lucky for you that us at Cain and Daniels do not charge any upfront fees. The business debt settlement service itself is legal nationwide. We know your state’s specific regulations regarding debt settlement fees and practices, so feel free to reach out if you have any questions.

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