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Press Release 02/16/2007






More Private Companies Seek Help Managing Their Debts

By Steve Newman, Guest Columnist  

Now more than ever, debt is a double-edged sword for closely held companies.  Most businesses must borrow just to get started, and even long after they�re up and running many rely on lines of credit, monthly supplier accounts, and other means of deferring payment.  

At the same time, a host of outside pressures are making it more difficult for these firms to maintain the steady cash flow needed to keep their debts under control. Faced with these challenges, it�s no wonder more and more private companies are seeking outside help to manage their debts.    

Running Your Business Isn�t Getting Easier

Why is a private company more likely now to have debt troubles than ever before?  Consider:  

  • In February, 4th-quarter 2006 GDP growth was revised downward�from an initial estimate of 3.5% to a far weaker 2.2%.  It was the largest downward revision in the GDP in a decade, and is widely thought to be the result of the Fed�s interest-rate hikes in 2006 and earlier.  The lower growth rate reveals that more and more businesses are seeing reduced demand for their goods and services, hampering their ability to pay their debts.

  • Raw material costs are rising.  It�s not just the months-long climb of gasoline prices.  Industry Week magazine reports that copper prices have doubled in the past year, nickel prices are on the rise, and other material costs are as volatile as they have ever been.  In response, manufacturers who buy these materials are raising their prices . . . which cuts into the cash flow of the firms who buy their products.

  • The U.S. economy is more sensitive than ever to global economic news.  On February 27 China �s Shanghai Composite market dropped 8.8%, immediately triggering significant declines in both U.S. and foreign markets.  Even if it proves to be an isolated event, it shows how fast global economic news can hit the stock investments that closely held companies rely on for a variety of needs�indirectly reducing their ability to make debt payments.

  • Competition both big and small.  In his book �The Wal-Mart Effect,� author Charles Fishman says, �Wal-Mart isn�t just a store, or a huge company . . . [its] low prices routinely reset our expectations about what all kinds of things should cost�from clothing to furniture to fresh fish.�  At the other end of the spectrum, tiny, low-cost online merchants have made nearly every category of consumer and business goods more competitive than ever.

Even closely held firms which have grown despite these challenges are likely feeling a heavier debt burden lately.  That�s because many business owners rely on credit cards or home equity loans�increasingly ones with variable rates�to launch or expand their operations.  Besides being more costly to use as interest rates have risen, many credit cards� minimum payments have jumped to 3 or 4% (from the typical 1.5%) of the outstanding balance as interest rates have risen. 

Consider Your Options

As a private-business owner, what can you do if your company�s debt load has become a problem?  

Your first inclination probably will be to do nothing and hope to �ride out� the rough patch.  Unfortunately this approach often makes the situation worse.  Consolidating your debts with a new loan is another option, but most likely you will have to put up collateral such as your home or major assets of your business.   

Bankruptcy is third way to go but not as attractive as it used to be: The 2005 Consumer Bankruptcy Reform Act has unintentionally made it harder for small businesses to wipe away debts.  Even when a credit card is opened in the name of your business, the card�s terms and conditions are likely to say that the person opening the account is responsible for the debt.

What About Debt Settlement?

As a result, more and more business owners are discovering debt settlement.  If you hire an experienced, professional negotiator who deals with each creditor individually, some of your debts could shrink by as much as 70% (that is, you would pay only 30% of the outstanding balance, without borrowing money).  Always look for an experienced pro who will also handle all calls and letters from creditors�allowing you to focus on rebuilding sales and curbing expenses.

A key question that any business owner should ask a debt-settlement firm is how it earns and collects its fees.  Ideally, the fees should be based solely on the dollar amount of debt savings achieved for the client.  This makes debt settlement a virtually �risk-free� solution for the client: no fee to pay until all negotiations are completed.  

That�s not to say that debt settlement is perfect, or appropriate for all companies� financial situations.  It�s not for a financially stable business that simply wants to reduce its monthly payments.  Instead, it�s primarily for companies already behind on their payments and looking to make a fresh start.  Because they are �in arrears� on their debts, these firms� Dun & Bradstreet (or similar) ratings usually have already dropped.  Debt settlement activity may initially lower these ratings further, but in most cases it also proves to be the first step in rebuilding the client�s rating�precisely because payments are now being made where they weren�t before.  

The bottom line: If your company is dealing with heavy debt, you�re not alone.  Many companies are struggling against economic conditions beyond their control.  But don�t assume your debt problem will take care of itself.  While debt consolidation or bankruptcy might seem like the most obvious options, remember that debt settlement could get your business back on track financially with far less cost and stress to you. 

Steve Newman is Principal of Performance Source Inc (PSI).  Since 1963, PSI has helped thousands of clients save millions of dollars and satisfy their creditors without borrowing money.  Under the company�s risk-free process, clients decide which payables they want PSI to negotiate, they approve (or decline) all proposed settlements in advance, and owe PSI nothing if a settlement is not reached or not accepted.  And because PSI also handles all contact with clients� creditors, clients are able to focus on growing their businesses.  Steve can be reached at 800/883-5080, or  The company�s web site is