The Difference Between Consumer and Business Debt

By Robert Jacovetti

Debt refers to money owed by one party to another party. However, debt comes in two different forms: consumer debt and business debt.

Consumer debt

This refers to debt accrued for personal purposes and is regulated by the Fair Debt Collection Practices Act (FDCPA) to protect individuals from harassment and unfair or deceptive practices by debt collectors. Consumer debt includes the following:

  • Credit cards;
  • Vehicle loans;
  • Boat loans;
  • Student loans; and
  • Any unsecured personal loans.

Many individuals utilize credit cards or may use personal loans to purchase tangible items, services, go on vacations, pay medical expenses, purchase food, or pay bills. It is worth noting that in order to obtain a credit card or a personal loan, an individual must meet certain FICO credit score requirements.

Business debt

To obtain credit as a business owner, a lender may look at the individual’s personal financial situation as well as any necessary business documents, such as bank statements, cash flow, income statements, and tax returns to ensure that the owner’s business is sustainable. It is worth noting that collectors of business debt are not subject to the FDCPA. However, there are alternatives to taking out a business loan, such as a merchant cash advance, which may be a better option for small business owners.

A merchant cash advance is an advance on future revenue. A person is not required to pay it back if his or her business fails. The payments are deducted from a merchant’s revenue account each day until the advance is paid in full. As part of the process, a lender will require a person to provide the businesses merchant processing statements and bank statements to determine how much of an advance he or she will qualify for.

For many small business owners, a merchant cash advance may be the only option in order to continue to grow his or her business without putting themselves in greater debt. It is important to speak with an experienced merchant cash advance attorney who can help explore the options that are right for you and your business.

Robert Jacovetti of Jacovetti Law, PC is experienced in merchant cash advance defense matters, including debt resolution. Our merchant cash advance lawyers will work with clients to assess their debt situations and advise them on the best path to financial stability. To schedule a free 15-minute telephone consultation or office visit, contact our New York debt relief law office at (516) 217-4488 or fill out our contact form.