Chat with us, powered by LiveChat




Will Business Debt Settlement Hurt My Credit Score?

If you run a small business that is struggling with debt, you may be wondering if debt settlement is a good option for you. Specifically, you may be concerned about how debt settlement could impact your business credit score.

How Business Debt Settlement Works

Business debt settlement involves working with a company like Delancey Street to negotiate down your outstanding business debts. The goal is to settle accounts for less than you currently owe.Here’s a quick rundown of the business debt settlement process:

  • You stop making payments on the accounts you want to settle and instead make monthly payments into an escrow account. This gets saved up to eventually make settlement offers.
  • Delancey Street negotiates with your creditors to try to get them to agree to accept a lump sum payment that is less than what you owe, in exchange for considering the account settled.
  • If a settlement offer is accepted, the funds from your escrow account are used to pay the settlement amount.

The pros of business debt settlement are that it can resolve debt for less than you owe and avoid bankruptcy. The main con is that it can negatively impact your business credit scores if not done carefully.

How Business Credit Scores Work

Before getting into how debt settlement could impact your scores, it helps to understand what goes into business credit scores. The main ones are:Dun & Bradstreet Paydex Score: This score ranges from 0-100. The higher the score, the lower the risk you pose to creditors. It takes into account your payment history, public filings, collections, and outstanding debt.Experian Intelliscore: Also on a scale of 0-100. This examines payment history, debt levels, open dates of accounts, industry comparisons, and public records.Equifax Small Business Credit Score: Ranges from 0-1,000. Key factors are payment history, debt load, credit history length, new credit, and public records.As you can see, payment history is a critical component of all major business credit scores. Missed payments can significantly drag down your scores. Now let’s look at how debt settlement fits in…

See also  Albuquerque MCA Defense Lawyers Business Debt Relief

How Debt Settlement Can Impact Scores

With business debt settlement, you stop making payments on the accounts you enroll so you can save up funds for settlement offers instead. This can hurt your scores:

  • It leads to missed payments being reported, which directly lowers scores
  • Creditors may close accounts due to non-payment, reducing your total available credit and history length components
  • Accounts get sent to collections more quickly since you are not paying
  • Each collection can stay on your reports for up to 7 years and severely damage your scores

However, business debt settlement does not have to devastate your scores if done strategically. Here are some tips:

Strategies to Protect Scores During Settlement

If you decide to pursue business debt settlement, there are some things you can do to help safeguard your business credit scores:

  • Carefully pick which accounts to include – settle high interest debts but keep paying essentials like equipment financing.
  • Ask creditors to report you as “current” during settlement negotiations – some will agree to help preserve scores.
  • See if any creditors would accept reduced payments instead of no payments – less risk of closed accounts or collections.
  • Only work with a settlement company that reports your program status to the business bureaus. This helps minimize score damage when enrolled accounts become delinquent.
  • After settling, pay all remaining debts on time to start rebuilding your payment history component.
  • Be prepared to use secured business credit cards or financing to add new positive payment history.

Essentially, you want to preserve positive payment history wherever feasible, communicate with creditors, settle accounts quickly before they reach collections status, and focus on rebuilding once debts have been resolved.

What If My Scores Already Dropped? Rebuilding After Settlement

If you already started the settlement process without protecting your business credit, don’t panic. Here are some rebuilding tips once your enrolled debts have been settled:

  • Bring any remaining accounts current and commit to perfect payment histories going forward.
  • Contact creditors you settled with to see if they would reopen those accounts. If so, use them again and pay on time.
  • Become an authorized user on a business colleague’s credit card if they have strong payment history.
  • Get a secured business credit card and use it responsibly to add positive history.
  • Apply for credit builder business loans where on-time payments are reported.
  • Pay off collection accounts that resulted from the settlement process. Paying collections won’t remove them but will lessen the score damage.
See also  Alaska MCA Defense Lawyers Business Debt Relief

With a bit of work, perseverance, and diligent on-time payments, you can rebuild your business credit after debt settlement. Just focus on re-establishing positive payment history.

Delancey Street Can Help With Settlement and Credit Guidance

If business debt has become an unmanageable burden, know that settlement may still be an option without destroying your credit scores forever. The team at Delancey Street can walk you through the process, help strategize account enrollment, and provide guidance on protecting your scores.We have extensive experience negotiating debt settlements for small business owners across the country. Our dedicated experts will treat you like more than just a number or client file. Plus, we are one of the only settlement companies that proactively reports program status to help minimize score damage from non-payment.In addition to handling settlements, we also provide tips to help rebuild business credit once debts have been resolved so you can get your scores trending upward again.Have questions about how settlement could work for your business debts? Need guidance on protecting credit scores? Give us a call or request a free consultation. Our experts are here to help get your business back on steady financial ground.

Frequently Asked Credit Questions During Settlement

If you are worried about business debt settlement hurting your credit, you likely have some lingering questions. Here are answers to some of the most common credit-related concerns we hear:

Does settling totally ruin my business credit? It can certainly hurt, especially if accounts end up in collections or you can no longer use credit cards that get closed. However, taking a strategic settlement approach and proactively rebuilding after can help minimize long-term damage.
Are there any debts I should exclude from settlement? If you rely on certain vendor credit lines or equipment financing to operate your business, you may want to consider keeping those accounts current during the settlement process. This avoids risk of closures that disrupt operations.
How long until I can get business financing again after settlements? Most experts recommend waiting at least 12 months after finishing settlements before reapplying for significant financing. This allows some time for scores to start rebounding as you rebuild positive payment history.
Will all my creditors remove settled accounts from my credit reports? Unfortunately creditors are not required to remove settled accounts. They may update to show a $0 balance but can still report the late payments that occurred. Getting them reopened for further use is better.
How can I explain these settlements to future lenders? Being transparent about the situation can help. Explain it as a one-time event from an otherwise responsible business manager. Emphasize that you prioritized resolving debts over dragging things out further and are now committed to strong money management. Providing 12+ months of perfect payment history on remaining obligations also helps demonstrate that.
Are there business credit experts I can talk to about rebuilding? Yes, the team at Delancey Street has extensive experience helping clients rebuild credit after debt settlements. We guide you each step of the way when you are ready to start reestablishing positive history. Feel free to ask us any other credit-related questions as well!

See also  Los Angeles Merchant Cash Advance Lawyers and Business Debt Relief

Don’t Wait to Get Debt Relief

As a business owner, having excessive debt hanging over your head can be demoralizing. And yes, certain debt relief strategies like settlement could temporarily impact your business credit scores. But leaving debts unaddressed is not a long-term solution either if cash flow remains tight each month.The team at Delancey Street helps business owners find the right debt relief options for their unique situations. We start by fully assessing your debts, budget, and goals. For some, that may mean negotiating settlements so you can move forward less burdened. For others, different relief programs may be better suited.Our experienced advisors know all the ins-and-outs of preserving business credit standings while pursuing debt reduction. Contact us for a free consultation and customized debt relief action plan. With personalized guidance, you can reduce debts to sustainable levels without completely destroying your business credit scores long-term.

Delancey Street is here for you

Our team is available always to help you. Regardless of whether you need advice, or just want to run a scenario by us. We take pride in the fact our team loves working with our clients - and truly cares about their financial and mental wellbeing.

"Super fast, and super courteous, Delancey Street is amazing"
$500,000 MCA Restructured Over 3 Years
"Thanks for helping me in literally 24 hours"
$250,000 SBA Loan Offer in Compromise
"Great choice for business owners who need a trustworthy partner"
$350,000 MCA Restructured Over 2 Years

In The Media

Delancey Street CEO discusses ways to reward employees
Delancey Street CEO discusses the benefits of franchising on Forbes.
Delancey Street CEO discusses management on AMEX.
Connecticut Debt Relief Lawyers

Dealing with overwhelming debt can be a daunting and stressful…

Connecticut Timeshare debt relief lawyers

In today’s fast-paced world, timeshare ownership has become a popular…

Connecticut Medical Debt relief Lawyers

Medical debt is a growing concern for many Americans, and…

Connecticut Student Debt Relief Lawyers

Student debt has become a significant burden for many individuals…

Connecticut Debt Consolidation

Debt can be a heavy burden to bear, especially when…

Delancey Street simply gets it. You're talking to experts.
Steven Norris
Get Help Today

Ready To Get Started?

If you have questions, feel free to shoot us an email, or fill out our live chat.

Schedule Consultation