Like individuals, businesses also suffer from too much debt at times. The difference between a business that struggles and succeeds is decided by its ability to take on the right amount of debt and at the right time. According to the SBA or the Small Business Administration of US, around 50% of small business firms meet failure within its initial 5 years and the primary reason behind their failure being inadequate capital, too much of debt and poor credit and debt management. Borrowing usually makes sense for a business when it is necessary to bolster cash flow or growth of finance. In spite of that due to the lingering impacts of the Great Recession, the past few years have been a difficult time for the small business firms to manage themselves in this tough competition and rat race.
Since the financial setback within the nation, the lenders have tightened the reins on the borrowers and to add fuel to fire, prices of everything from materials to health care to tuition costs are of the rise and all this has mowed down the small business owners and forced them to strain under the soaring debt burden. Innumerable numbers of businesses throughout the nation are filing bankruptcy in a year, according to the Automated Access to Court Electronic Records. If you wish to avoid a similar kind of fate, here are some ways of digging out of small business debt.
- Cut down irrelevant costs and start freeing up cash: The first step should include identifying the different parts of the business which got the company into accruing huge debt loads and attacking them head on. If you see that your customers aren’t paying money on time and your recurring business expenses are soaring at the same time, ramp up collection efforts so as to take immediate action. Also ditch unnecessary office space and downsize to a smaller office to save on rent. Free up cash this way.
- Take a closer look at your budget: If you see that your debt is piling up, then it probably implies that your present business budget is not at all working out. Hence, your next task should be to follow a budget based on the present financial condition of your business. Always ensure that the revenues of your business more than cover the fixed monthly costs like the utility bills and the rent payments. Then you need to assign a portion of your budget to the variable costs. In case you have credit card debt, keep paying more than the minimum as this will reduce the years you need to pay it off.
- Set priorities for your debts: When it comes to high interest debt that should be tackled first. Most probably this will mean focusing your energy in paying down your credit cards. If you owe money on different kinds of loans, you should set priorities with regards to the interest rates of each of them and target the one that carries the highest interest rate. Always remember that you have personal guarantee on your business debt which means that a creditor or a supplier can come after your personal assets if you default on your commercial debts.
- Negotiate with your creditors & suppliers: If you think that your creditors are the wrong people to speak to, you’re mistaken. They’re actually the best people to speak about your current financial situation. Tell them what you’re going through and what payment you can arrange for them. After taking a stock of your present fiscal state, they will soon offer you with an alternative repayment plan through which you can repay your debts with ease. Also speak to your suppliers and request them for rebates and discounts.
- Consolidate your business loans: Once you consolidate your business loan through either professional debt consolidation programs nationwide or by taking out a consolidation loan, you can star repaying what you owe in easy and affordable monthly payments. However make sure you make timely payments towards the debt consolidation program lest this affects your credit score in the long run.
- Seek help of commercial debt counselors: If you don’t wish to consolidate your debts through a program, you can plan to seek help of a commercial credit counselor. He will assess your present financial state and then recommend you some of the worthiest steps to take to get rid of debt. They can even sign you up with a commercial debt management program.
Hence, if commercial debts are keeping business profits at bay, take the above mentioned steps to get rid of debt as soon as possible. The sooner you bid goodbye to debts, the sooner you can feel stress-free. Follow the expert advice in order to steer clear of business debts.