Dealing with Overwhelming Business Debt Using Debt Consolidation and Other Ways

Just like individual consumers, owners of small to medium sized businesses are also prone to falling into huge, overwhelming debt. Their businesses end up struggling because of poor debt management.

The Small Business Administration in the US at one point reported that close to half of small businesses fail within their fifth year, largely because of issues related to debt including taking up debt that is too expensive and accepting payment terms that disrupt cash flow.

Most businesses are at some point compelled to borrow finances for expanding business operations or resolving cash flow problems. However, following the great recession, many small businesses in the US have found themselves in dire financial situations as a result of overextending their credit facilities repay.

It is certainly true that your seemingly insurmountable debt could have been avoided by making wiser borrowing decisions. That notwithstanding, you need to set aside this retrospective financial analysis for now and come up with some quick solutions, especially if your creditors are at the door.

Faced with colossal business debt your options boil down to two courses of action: attempting to save your business by finding a way to settle outstanding debt accounts, or allowing the business to fail while following an exit strategy with the least negative impact.

Save the business

As the owner of the business, your first instinct will probably be to save it by using money from your personal account to pay off the debts owed by your business. This is a risky move that has probably worked as many times as it has failed. It is advisable to take this action only if you can honestly justify it as a temporary measure with a high likelihood of success in the long term.

Debt relief experts at note that there are other measures that could help steer your business back to good fiscal health.

Cut expenses

If using your private funds to bail out your business is not possible, you need to find ways of cutting costs. For example, you can sell off idle business equipment or sublease unutilized space on your premises. Cutting down your manpower is unpleasant, but it might be necessary for your business to survive.

Reach out to suppliers and customers

Maintain contact with your customers and come up with ways of ramping up your business model and increase your market presence in order to boost revenue. Encourage your customers to pay quicker through incentives such as markdowns. Similarly, negotiate for deferred payments as well as discounts from your suppliers.

Handling numerous creditors and collection agencies can distract you and make you less effective at managing your business. Outsourcing your debt management to a debt relief firm can resolve this problem.  A well-established and highly experienced firm would effectively negotiate debt settlement with your creditors far better than you would.

Consider debt consolidation

Business debt consolidation involves lumping up all your unsecured small business loans into one huge loan, for which you make one monthly payment. Among the main advantages of debt consolidation is the fact that it does not hurt your credit score.

Taking out a debt consolidation loan takes a huge weight off your shoulder as you would thereafter deal with only one, rather than multiple, creditors. Often, the interest rate charged on the debt consolidation will be lower.

You can hire a debt consolidation company to facilitate the process by handling the negotiations for the new loan and making payments to your previous creditors on your behalf after collecting payments from your business. The debt consolidation loan can either be asset-backed or unsecured.

File for Chapter 11 bankruptcy

A Chapter 11 bankruptcy is the last resort for small business owners looking to save their businesses. This is especially the case when the business is viable, barring the business debt challenges it is currently facing.

Note that the process of Chapter 11 bankruptcy is often extended and arduous, needing the services of a highly qualified bankruptcy lawyer. Nevertheless, it may at times be the only option available to you for dealing with your small business debt burden. Where the value of your business assets is less than the debt owed, you may be allowed, through bankruptcy, to settle the debt to the extent of the assets’ value and not the full amount payable.

Allow the business to fail

Where no hope is in sight for settling the debt and keeping the business in operation, you may have to consider winding it down in an orderly manner. Locking doors and simply walking away will result in you being sued by your creditors and them going after your personal assets.

Put the business up for sale

One of the options available to you is selling your business to raise funds for settling the business debt. It is far easier to deal with one buyer than to sell individual assets separately. This option would free you up from debt obligations in the future. If the total value of your business is, however, less than the business debt, this option may not be suitable.

 Liquidate assets

An alternative to selling off the business in one sale is liquidating individual business assets and distributing the money raised from the sale. Most creditors will accept a settlement amount that is less than the amount payable rather than go the costlier route of litigation, which may force you into bankruptcy, in which case they may get less.

Keep in mind that if business debt is personally guaranteed by the business owner, most creditors will demand that the business owner be held personally responsible for the lines of credit. That means that you, as the business owner, will be liable for the business obligations unless your creditors free you.


Chapter 7 bankruptcy is the absolute last resort, where a bankruptcy trustee takes over your business. They liquidate the assets, collect on accounts receivable, pay taxes owed and pay off creditors.


Tough financial times are a normal part of any up-and-coming business and in many cases, you are justified to take out small business loans to stay afloat. These debts may, however, balloon to an unmanageable level. When this happens, you’re usually better off seeking professional debt relief services rather than trying to handle the situation on your own.

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