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Four Tips for Working Out Your Business Debts

December 19, 2011

Four Tips for Working Out DebtsEconomists generally say we're not in a recession anymore. But many small-business owners will tell you it sure doesn't feel that way. Many still don't have the revenue they had back in 2007.

This reduced revenue has left business owners struggling to pay their monthly debt service for commercial real estate loans and equipment loans and leases. They're staring at all this debt and facing the prospect that it's going to wipe them out.

The good news is that all debt can be reconsidered -- and reduced, rescheduled and removed – not just worked out.

If you're one of these businesses owners, I strongly suggest that you focus first on bank-secured debt, especially loans backed by the U.S. Small Business Administration. That's because you've given those banks collateral that will end your business if those banks come to collect.

Related: The ABCs of Business Credit

SBA loans are even worse because the bank or banks you got them from will have to go through a series of steps, including shutting down your business and then liquidating the collateral in order to receive the SBA's loan guarantee. That's a devastating scenario.

The good news is that it's possible to renegotiate a loan with better terms. Here are some pointers you could follow to make sure your bank works for you, versus the other way around:

Sometimes, there simply comes a time to cut and run. There comes a time to say, "I can't do this." If the numbers do not work, you can file for Chapter 7 bankruptcy protection and move on.

Don't feel guilty about not paying back a loan to a bank. Entrepreneurs didn't start the Great Recession. You didn't fail. It was large financial institutions that caused this mess. So don't feel guilty about having to cut your losses. You must survive to start over again.

Related: Small-Business Cards Offer Rewards, Some Risk