Business Debt Resolution Companies: 5 Deliverables to Require

In a perfect world, small businesses would have very few business loans or debts to pay. In the actual world, small business owners are overwhelmed with all kinds of business debts that might include business loans, daily or weekly merchant cash advances and credit card payments. If your business is among those that need help to work out a deal with a cash advance or loan company, finding a knowledgeable resolution company to help is vital.

Get It in Writing First

If you are going to hire a firm to get you relief, get it in writing first. You want an estimate of timeline and savings, you want the firm to charge a fee only after a settlement, you want any money you pay kept in an account you own, you want honest warnings about risks, and you want your settlement papers to be explicit that you are out of the woods.

All of this is fairly reasonable - so you’d think all the top-tier debt settlement services would just automatically offer this, right? Sadly, no, not really. You see, debt settlement services for businesses may not have to offer these policies. But the simple reality is that the FTC Telemarketing Sales Rule may not even apply to most calls between a telemarketer and a company. Which means all your consumer protections against shoddy treatment may not be a done deal - you have to insist on these promises in the contract.

The most important part of an estimate is a timeline - when can the relief service give you some respite? Debt relief services are essentially negotiators - they’ll open a line of communication and try to negotiate a settlement. A good debt relief company should be able to give you an estimate of when they may deliver a proposed settlement to each creditor. You’ll also want to know how much you’ll have to save to make a reasonable deal with each creditor. If you know how much money you have to pay in, then you also know how many months this is likely to take. If the company is holding out on these critical numbers, don’t work with them.

Unethical businesses will charge you as soon as you sign their contract, or long before you see any action. A good debt relief company should only get paid when they deliver. For consumers, the FTC rule is that the settlement company can’t collect any fee until at least one debt is settled, you’ve agreed to the deal, and you’ve already made your first payment. For business debts, make sure to get the same agreement in writing.

When you set aside the money you are planning on paying into a settlement agreement, where do you keep that cash? The settlement company may want to hold on to that cash until the deals are done. That’s not a good idea: you might give away all of your power and all your money to the one company you hope will be fighting for you. Make sure that the money you’re setting aside to make a lump-sum payment to your creditor is held in an account that you own, not in an account the debt relief company owns and controls.

Your money should go to an actual, insured bank. You must own and control all the money and interest. The account administrator can’t be owned by or affiliated with the debt relief company and can’t share fees with it. And you should be able to quit without penalty or hassle at any time, getting back all your money - except fees the company has properly earned - within seven business days.

Creditors May Do Some Not-so-friendly Things

But while you’re working with a debt relief company - negotiating, saving up for settlements, coming to an agreement - creditors may do some not-so-friendly things. Debt relief agencies aren’t a block against them. If a debt relief program involves having you stop paying your creditors, you should expect some warning label. Stopping payments may hurt your credit, cause lawsuits, bring on more collection actions, and add fees and interest. By the time it’s all over, you may owe more than you started with.

The papers that an MCA company may be sending to you during this time are all different things. A UCC-1 filing is not a judgment, it’s a notice that the funder claims an interest in collateral. A notice telling customers or processor to pay the funder instead is not a court paper. If you get court documents or a notification that your funds have been restrained, see a lawyer right away. Not sure what you have? The debt resolution company should help explain it to you.

A UCC filing isn’t a court order to hold funds in your account. If your money is restrained, ask the bank or processor why. Keep any notice that instructs customers to pay the lender rather than you, and ask a professional for help before telling your customer to ignore it.

Settlement Paperwork

Then there’s the settlement paperwork. The time to find out if it’s good enough is in the beginning of the project, before you write the first check. A settlement is a simple matter of you paying some money, or promising to pay some money, and the creditor releasing you from the balance of the claim. So make sure you know what debt is covered, and what release the creditor will sign off on. Don’t settle for an email saying it’s been taken care of. The settlement papers should say what obligation and UCC filing numbers are covered, who is filing the UCC-3 termination and when, who will withdraw any notice sent to customers or processor to pay the funder, and what releases will be given to the business, guarantors and collateral. Be explicit about how missing one payment will affect the deal.

The UCC-3 termination ends the filing’s effect, but doesn’t necessarily erase the fact that the filing ever happened. Just having the original filing lapse is not the same as a settlement deal.

When you settle a debt for less than the balance due, the forgiven part usually counts as income. The creditor may give you a 1099-C. Don’t overlook this: when you’re settling, ask about taxes, and plan for that extra bill. Canceled debt may not be income if discharged in bankruptcy or while insolvent (only up to the amount of insolvency); the business excludes the amount from income by claiming it on Form 982; the exclusion may reduce tax credits and the basis of assets. That’s why you should talk to your accountant before you settle.

Before you sit down with anyone about your MCA, pull the paper together. The MCA agreement and amendments, the security agreement, the guarantee. Check the full UCC record, payment history, and any payoff or settlement papers. Find every customer, processor, bank or court notice you have, with the date each arrived and any deadline it claims.