7 Strategies to eliminate your business debt with ease – Lyle Solomon

Small business debt is common. Just like the consumers, many business owners find themselves in debt. There can be many reasons for small business owners to incur huge debts, such as unexpected expenses, expansion, or poor management. When debt balance exceeds revenue, you must look for other means to become stress-free.

Otherwise, your debts will become unmanageable, and the credit collectors will pressure you. Before starting a small business, decide what kind of financing you will use for your business. Debt financing is one of the most popular and easy ways of financing your business.

Debt financing is when you take a loan from a bank or other standard financial institution to pay for your business. The drawback of this process is that you will have business debt on your account.

However, if you know how to reduce the other costs of your business so that you can accumulate enough money from your profits, you can pay back your business debt as fast as possible and be debt free once again.

What are the kinds of debt financing people usually get?

 

Short-term loan

You can take out short-term loans, which you need to repay along with the interest payments within a particular period, which is not too long. This period usually ranges from 150 to 180 days. These are also called demand loans, as they can be called in by the lender, a bank, or a credit union at any point.

Long-term loan

You can also take out a long-term business loan for your small business financing. These loans are term loans used to finance particular assets like the renovation of buildings or capital equipment.

How can you get out of your business debt?

One of the best ways of getting out of your business debt is to reduce your business’s costs and gather enough profits to pay back the initial finances you borrowed. This is not too difficult as your business starts settling down.

Initially, you must conduct all your business activities with money borrowed from buying things from your vendors to paying your suppliers. But once your business starts working and the profits start streaming in, it is easier to produce from these profits.

You should remember not to extend products on credit to your customers during the initial phase of your business. At such times you would need all the capital you can muster, and selling products on credit will do no good to your business.

You should also keep in mind to reduce the cost of your business by cutting out unnecessary expenses. Thus you can see business debt is customary if you have to start a small business.

However, you can get out of it by following proper financial practices.

Here are some tips for you:

  1. Follow a budget and lower business expenditure

Budgeting helps you track your spending correctly. So, you will be required to prepare a proper budget based on the income and expenses of the business. Then, you will have to work on lowering the company’s expenditure. A lower price will mean you can use cash to pay off debts, thereby minimizing debt.

Refinance the debts – You can try business debt refinancing. With debt refinancing, you have the option to replace the variable rate borrowings. For this, you need to understand the different financing options that your business can have.

  1. Monitor the cash flow

You must monitor the cash flow properly to minimize the expenditure. You will have to compare the amount of money your business has been able to create and the spending resulting from managing the business.

If required, you will have to change the business planning to increase the cash flow into your business and not out of it.

  1. Increase marketing to improve earnings

You will have to increase your business’s profits as it can help you pay off business debts. This simply is going to help you minimize business debt. Now, payments can be increased by improving your marketing techniques.

  1. Utilize assets to pay off debts

You can utilize your business assets to pay off your business debts. You can use some of the help from your company and even your personal finance to pay off the business debt and minimize it.

  1. Consider business debt relief options

There are mainly two types of business debt relief options out there that you can consider.

  • Commercial debt counseling

Commercial debt counseling is similar to that consumer debt counseling. Here the counselors will assess your financial status, detect the economic problems, and suggest possible ways to help you run your business smoothly. The counselor aims to increase the revenue by determining the problem area of expanding your business debt.

They will use the funds for the various departments of the business efficiently. They will educate your business managers about managing finances and improving the situation.

  • Business debt consolidation program

The first step of a business debt consolidation involves selecting a business debt consolidation company.

However, as the business owner, you must ensure that the business debt consolidation company you have chosen is genuine. Unfortunately, if you get caught in the hands of an unethical debt consolidation company, all your business debt elimination endeavors may go in vain.

To judge the genuineness of the debt consolidation company, you can check its status with the Better Business Bureau (BBB). If the company has a good record with BBB, you can rest assured about its genuineness.

The company then analyzes the financial health of your business and even offers valuable financial tips for your business. In the next step, the company decides upon your monthly payment amount after consultation with your creditors.

This monthly amount is less than what you were paying in total per month before opting for the business debt consolidation program. Whatsoever, by paying a single monthly amount for a certain period, you can get your business free from debts.

  1. Avoid the credit card debt trap

The interest rates on credit cards are comparatively higher. So, it is advisable to use only credit cards where appropriate and pay off the outstanding balance monthly. Industry experts believe that your employees, who need to travel, should take out their credit cards with the company by paying an annual fee.

This makes the employees responsible for turning in expenses and keeping the debt off the organization’s books.

  1. Maintain good relationships with banks

If you’ve already established a good relationship, you shouldn’t end it just because another bank offers you slightly better terms and conditions on a loan. If you do so, you will spoil the relationship with your existing bank that is well aware of your business operations. The situation may worsen more if the credit committee of your new bank refuses to do business with you.

How to get an unsecured business debt consolidation loan

In the case of business, both secured and unsecured debt consolidation loans are available. If you’re willing to take out an unsecured loan, then you won’t be able to qualify for repaying huge debts. It’s because lenders will feel insecure, and if you’re able to prepare for it, they will charge you a high-interest rate.

Unsecured debt consolidation loans are approved only for small debts. In the case of a business, you have to take out a secured debt consolidation business loan and keep any valuable piece of your business property as collateral.

Conclusion

Maintaining a business involves enormous expenditures. Thus, debt is consolidated to be good in some aspects of a business, showing that the company is growing. Increased debt can prove fatal for your business.

You will be required to act and think like a pro who can work towards minimizing the company’s debt burden. A business should always consider the terms and needs instead of focusing only on loan interest rates. An agreement may contain legal costs for obtaining a loan and the origination fees that may raise the interest rate, which is otherwise suitable for your business.

So, you should consider the overall cost of loans before obtaining one. Be regular on your payment toward debt, and you’ll see that you’ll be out of this situation in no time. The correct business strategies will help you flourish in your business.

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