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Business Debt Counseling

Business debt counseling can help a business navigate through difficult circumstances.

Debt problems can cripple a business of any size. [©Jupiter Images, 2009]
©Jupiter Images, 2009
Debt problems can cripple a business of any size.

Business Debt Counseling

A business debt counseling service manages a business's debt, works to reduce it and sometimes consolidates it. Business debt counseling services often operate in the same manner as debt counseling programs for individuals. Business debt counseling can help struggling businesses avoid bankruptcy and control debt. These services typically develop repayment regimens that are acceptable to creditors and that also fit within the business's budget.

Why Businesses Choose Debt Counseling

For many businesses, the problem with debt is that it can strangle cash flow. When a business is at a tipping point and bankruptcy is a real option, business debt counseling can be a potential solution. Some businesses also turn to a business debt counseling service before the situation has reached a crisis point because they want to better manage their debt to improve the overall fiscal health of the business. The U.S. Small Business Administration (SBA) explains that people with poor credit often turn to a debt counseling service to repair it when seeking business loans.


Existing businesses also employ business debt counseling services when they are delinquent on debt accounts, have accumulated too much debt or simply want to reduce debt. Sometimes businesses face slower than expected cash flow, which can be caused by the unexpected loss of large customers, an economic downturn or by late payments from customers (or a combination of all of the above). Getting control of debt can be a business's only chance for survival.

How Business Debt Counseling Works

Business debt counseling generally tries to help businesses reduce debt by consolidating or reorganizing it so it is affordable. A business debt counseling services representatives will usually work to address delinquent debts by crafting acceptable arrangements with creditors. Many business debt counseling services then take monthly payments from the business and distribute them to creditors. Often, creditors agree to lock-in interest rates more favorable to the business in exchange for receiving steady payments.

The goal of many business debt counseling services and the businesses that employ them is to increase cash flow and ultimately reduce debt. Some companies, which can be either for-profit or non-profit, also assist in crisis management to help a business avoid bankruptcy.

The most reputable business debt counseling services not only work to restructure and eliminate the business's debt, but also offer the services of counselors who will help the business determine long-term strategies to more effectively manage their finances and debt. The goal is to increase revenue and to address any long-standing issues that are affecting the business's cash flow. Sometimes, this is the debt load alone; in other cases, additional deficiencies in the business's management practices can be identified and fixed to prevent a recurrence of fiscal problems. Many business debt counseling services focus on the following areas:

  • Business bankruptcy. Some business debt counseling companies will work to stave off bankruptcy, which can be costly 
  • Business debt restructuring. Debt is reorganized and negotiated to reach terms that will work for the company and provide better cash flow
  • Accounts payable issues. Some businesses run into problems paying all their accounts. Some business debt counseling services will manage a company's accounts payable
  • Debt reduction. Business debt counseling can result in a reduction of debt for businesses

Problems with Business Debt Counseling

BusinessWeekOnline explains that debt counseling services in general have been rife with fraud. Because of this, debt management services are often regulated by states. Many states require business debt counseling and other debt management services to obtain licenses. Those interested in hiring a business debt counseling service can contact their state to check the services licensing history and should also contact the Better Business Bureau to see if complaints have been filed against the service. The Better Business Bureau also publishes reliability ratings for businesses that can assist them in choosing a reputable business debt counseling service. Businesses should be wary of business debt counseling services charging high fees. Although such companies often advertise that they are non-profit organizations serving the public interest, BusinessWeekOnline found that this is not always true, as many are quite profitable.

Businesses should also be aware that having used a debt counseling service is seen as a credit blemish and can negatively affect their credit rating when applying for loans.

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