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Handling Bad Business Debts

written by: •edited by: Michele McDonough•updated: 7/28/2010

Businesses often tend to run into bad debts no matter how foolproof a backup plan. A business carrying several debts can get into trouble if the debts are not disposed off as soon as possible - before they turn into bad debts. The article looks at options for dealing with bad business debts.

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    Bad Business Debts – Alternatives to Funding Business, the Traditional Way

    As we talk about dealing with bad business debts, lets also study the link between your business and personal debts. Business debts for a small business can also be personal debts for the owner of the business. And a major portion of these bad debts comes from credit cards. If you do not keep separate funding for business and personal use, dealing with bad business debts can be really tough. Because even if your personal credit score is bad but your business is promising, the doors of financiers are open for you. On the contrary, if your business is under a debt crunch, you'll have to look beyond the traditional money lenders to keep your business running.

    The best method is to keep your credit cards away from your business unless absolutely required. While speaking of business credit score, you need to know that approaching different agencies to get loans will further ruin your business credit score. As more and more agencies make enquiries on your credit status, your credit score goes down by a significant rate. This is not applicable if you are checking out your credit score.

    There are ways where you need not approach the traditional money lenders and banks. However, these are not always successful if your monetary needs are high. Among the alternatives for traditional loans are:

    1. Checking out family and friends. Many of them may be willing to help you.

    2. If you have a sound plan in place, you can show it to any person who has money but is not sure where to invest. You can find such people through share market agents.

    3. Go for high interest loans, available through private lenders.

    4. Check out different grants available.

    IMP: Loan Settlements are NOT Recommended for Long Term Business.

    Sometimes it may seem that negotiating and closing a debt with a settlement is the best idea. Many banks and lenders, who feel that your business may not be able to return the entire money taken as debt, will consider your application for debt settlement at a negotiated price. You may get out of debt this way but the settlement becomes a permanent mark on your FICO report. I would not recommend this method for dealing with bad business debts.

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    Dealing with Bad Business Debts – Get Rid of Debts without Getting into Bad Credit

    The best method to deal with bad business debts is to go for a loan takeover. You can find plenty of companies that are willing to take over your business bad debts. This is better than settleHow to Get Rid of Bad Business Debts ements as your records show that you paid in full. This is how you should proceed:

    1. Make good use of the Internet. Search for money lenders in your area who are offering loan takeovers at minimum interest rates. You need to read the fine print so that you don’t get cheated.

    2. Check with people in your network about money lenders who can take over your loans.

    3. Once you pinpoint a few such lenders, get into touch with them and negotiate on the interest rates. You need to provide them with all the information about different debts.

    4. Make it clear that you need a loan to settle your previous debts and NOT a settlement/consolidation (although it sounds like an easy way out). A settlement, as said earlier, will leave a permanent mark on your credit record. I stress this point because running a business will require you to apply for loans in the future and a record showing your inability to pay off a loan in full will definitely create a negative impact for a significant period of time. It is better to file bankruptcy rather than going for business debt settlement.

    5. Once you and the lender are clear on how much amount is required to pay off existing debts, you will be required to apply for a fresh loan with this money lender. These loans are mostly unsecured loans with good interest rates and better duration. While deciding upon the repayment plan, draft something that does not become a burden on you – even if it means going for a bigger tenure and thereby paying more interest. This way, you can make sure that your new loan does not turn sour.

    To sum up, the best method for dealing with bad debts in business is to go for a fresh loan to settle down all pending debts before they turn into bad debts without applying for loan settlements.