What Are the Different Types of Business Debt Relief?

Geri Terzo
Geri Terzo
Credit counselors can help negotiate with lenders to avoid forclosure.
Credit counselors can help negotiate with lenders to avoid forclosure.

Filing for bankruptcy is one way for a company to obtain business debt relief, although the procedure might interfere with the filer's ability to obtain financing in the future. There are other options for debt relief, as well. Restructuring debt under financial terms that favor the borrower can serve as a type of business debt relief, although creditors must be willing to cooperate. The options for obtaining relief for financial obligations might be limited to economic conditions, but consolidating debt can give a business a chance to generate enough income to avoid going out of business.

A bankruptcy filing does not have to lead to the cessation of business operations. It is often a last option for business debt relief in the event that financing cannot be obtained, income cannot meet financial demands and asset sales are not sufficient to meet debt obligations. The filing entity can gain protection from creditors for a period of time until a bankruptcy court accepts the terms of a restructuring attempt. A bankruptcy judge might assign a trustee to oversee the liquidation of assets so that creditors are repaid something. Hiring investment bankers could lead to the emergence from bankruptcy after conditions improve.

It may be possible to refinance debt under terms that are more favorable to a debtor. This type of business debt relief might be possible if creditors are willing to negotiate and the interest rate environment is attractive. If it is not possible to negotiate interest rates, a creditor might be willing to prolong the repayment schedule to prevent a borrower default. In either case, a borrower might need to disclose an actionable plan to reduce debt and ideally increase profits as creditor conditions to this type of business debt relief.

Debt consolidation is another choice for business debt relief. The viability of this option might be driven largely by any changes in the interest rate environment. It becomes an attractive option only by adopting lower rates. Credit counseling firms could be hired to negotiate terms on behalf of a debtor if necessary.

The monthly payment for the consolidated loan should be more attractive than paying individual creditors, as well. If a borrower has sufficient collateral, such as property or other assets, it might be possible to obtain a secured consolidated loan, which might offer the most attractive interest rates. In the event that a borrower defaults, the lender becomes entitled to those assets, however.

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    • Credit counselors can help negotiate with lenders to avoid forclosure.
      Credit counselors can help negotiate with lenders to avoid forclosure.