Sacramento Business Debt Settlement Companies: 5 Comparison Points for Owners

As a Sacramento business owner dealing with merchant cash advances, you need to look at several key factors when choosing a debt settlement company. Look at the whole picture and ask some tough questions.

• First: what service are you getting?
• Second: where do your payments go?
• Third: how much does the whole thing cost, including all fees upfront and at the end?
• Fourth: are you given advice to stop payments during negotiations, and what happens if the creditor sues you?
• Finally: Are you getting reviews, or answers to the hard questions in writing?

You may assume California law stops creditors from doing unfair things, but this is only partly true. California’s Fair Debt Settlement Practices Act only applies to debts owed for personal or family or household purposes, and not to debts owed for business or commercial purposes. That law says that customers seeking to settle consumer debts don’t have to pay until a deal has been reached with the creditor and a payment has been made. A California bill (AB 1166) would extend the law to cover debts of business with no more than 500,000 dollars in commercial financing. But whether for consumer or commercial debt, nothing in state law or the FTC rule caps how much settlement companies charge.

The first question to ask is what exactly you are paying for. “Debt relief” is a marketing term, not a service. It could mean negotiating for reduced settlements with funders, arranging a revised payment schedule, giving legal advice and representation, holding money for future settlements, or writing new financing to pay off old advances. Negotiating with a funding firm doesn’t necessarily mean a firm will defend you in court if the funding firm files suit.

As for where your payments go, just because a bank statement has a line saying “debt relief program” doesn’t mean your money reached the hands of a funder or helped pay any outstanding balance. It could be covering service fees or waiting to fund a settlement. To find out, ask for an itemized account statement listing deposits, fees, and funds sent to each funder by date and then match it against your bank account and your funder’s account records. You should find out if there is any discrepancy as soon as you can, because money being set aside to fund a future settlement may not keep your account current.

A promised reduction in what funders demand is only one part of the total cost of dealing with an advance; the other part is fees and charges. Ask in writing what fees are being charged, what they cover, when they are due, and what you will owe if only some or none of the advances settle. Warning signs include unexplained deductions, service charges that do not match what the agreement says, and refusal to explain where each dollar went. Also look at your own books to see if you could afford to pay the new monthly payments on top of the unsettled advances that are still open.

Some debt workout programs tell their customers to redirect funds, stop paying, or pay lower amounts while negotiating, but a funder may see this as an event of default and begin collection efforts. This includes a possible suit. Signing up with a debt relief company, or paying them, does not change a merchant’s agreement or prevent collection efforts or court action. Ask what happens if a creditor refuses to negotiate and what happens if a suit is filed.

Before changing payments based on advice, have the original agreements reviewed. One possibility is a funder could try to interrupt your payment stream by having your customers or payment processor directed to pay them instead. If this happens, keep copies of all the notices, and get the advice of an attorney as to what to say and do. Starting July 1, 2025, California’s Rosenthal Act applies to collection of commercial credit debts of $500,000 or less, including debts owed by personal guarantors. However, the rules only apply to business debts entered into, renewed, or assigned on or after that date.

”Best Debt Relief Company” Lists

Look at “best debt relief company” lists. First, see who publishes the list. Next, look closely at whether advertising payments, referral fees, or ownership ties are disclosed. Go beyond the stars and check if the reviews talk about whether settlements were negotiated, fees were clear, and if clients kept informed and had support in court. A single glowing review, or a single angry one, tells you very little about what your own experience will be like. Confirm the facts and promises are actually in the written agreement.

Canceled Debt as Income

Another expense to look at when comparing debt workouts is what the IRS does to your tax bill if debt is canceled. The IRS generally treats canceled debt as income unless there is a rule letting the person or business off, like an exclusion for title 11 bankruptcy or insolvency. Banks and lenders that cancel debt of at least $600 file a Form 1099-C.

Your Debt Relief Company Has Failed You

A delay or a missed update alone doesn’t mean your debt relief company has failed you, but some things mean it is time to ask questions.

• You were told funders had agreed but there is no written proof.
• You can’t match payments and withdrawals to your provider’s list of service fees and payments to funders.
• A court deadline is approaching with no confirmation an attorney is on file.
• An advance is “resolved” but no settlement terms are in your hands.
• Calls or emails go unanswered, or you’re pushed toward new financing without an explanation.

If you have already hired someone to negotiate down your advance, and the project has stalled or faltered, first handle any deadlines or court filings, because starting negotiations does not automatically extend them. Next, get complete records: signed agreements, accounts of money in and out, amounts paid as fees, and records of who is still owed what. Make one record per advance: the funder, account balance, any written offer, any signed settlement, any installments. If you are thinking of switching companies, first look at terms in the agreement for notice and fees, and check if anything still needs to be paid. Switching providers does not cancel a valid settlement that was reached with a funder.