Business Debt Settlement – What Do You Need to Know When Availing Loans?

Debt consolidation

Efficient management of debts and finances is essential in running a small business. Whether your business is a start-up or in growth-mode, lack of adequate capital may result in disasters. Business owners may seek finances through many cash advance options like bank loans, credit cards, and other lines-of-credit.

It is not necessarily unusual for businesses to have debts, but falling behind on paying off the different loans may cause serious troubles. When debt becomes unmanageable, it can cause a total financial breakdown. Before the situation gets any worse, you need to think about debt relief and settlement options. Here, we will discuss some of the business debt settlement options you can consider in such situations.

Availing secured vs. unsecured loans

There are two types of small business loans – secured and unsecured. A loan is secured when you have to offer a collateral security against the borrowed sum. For a business, collateral may be anything including physical assets, inventory, real estate, and equipment.  The major advantage of secured loans is that it may demand lower interest rates when compared to the unsecured loans, but it puts the borrower always at the risk of losing the collateral upon defaulting repayment.

On the other hand, unsecured loans do not require any collateral security. The loan is approved purely based on the ability of the borrowers to make the payment without fail. However, lenders may want to check the borrower’s credit report, credit history, and rating before approving the sum. When applying for unsecured loans, you should always check debt settlement reviews of the company.

The most popular types of unsecured loans are credit card advance, small business loans, or personal loans. When compared to secured loans, the interest rates on unsecured loans are typically higher as there is no collateral to support in case of default. The unsecured creditors may have to initiate a lawsuit to obtain a favorable judgment in the event of default to get back their money through liens, garnishments, and bank restraint.

MCA vs. business loans

MCA (Merchant Cash Advance) is another means of getting a cash advance to raise business capital. Even though MCA may appear similar to a typical business loan in which you get money upfront and then need to repay in monthly installments, it is not a conventional loan. In actual, the lender who is offering the finances is purchasing some discounted receivables from the processing account of the business merchant.

When small businesses face a revenue deficiency, daily payments may become unbearable. To make the matter worse, the fair debt collection practices act (FDCPA), which provides extensive protections to consumers, is not applicable to the business debt collectors. So, Merchant Cash Advance lenders may bring in the debt lawsuits quicker than the other credit services, sometimes within just a few months of missed payments.

Regardless of the reasons of financial strain, business owners need to act sooner than later to avoid any serious consequences of business debts defaulting. Good debt settlement agencies and consultants will be able to help you out if you are struggling to overcome the financial burden and stress of debts.

Author bio: Jim McGill is a financial consultant who is working for a leading credit agency in the United States. He also used to write debt settlement reviews and articles for the followers.