By Caroline Bird
Debt is usually pretty common when it comes to small businesses, especially when those businesses are just trying to find their footing. Start up costs can include everything from purchasing equipment and products to hiring other employees or renting office space. Most small businesses need to cover these expenses with credit or by taking out a loan.
But as necessary as borrowing is for your small business, too much debt can hold you back. The faster you can get out of debt, the easier you will be able to help your business succeed.
If you are struggling to get out of your small business debt, don’t worry. You just need to focus appropriately. To help you get your debt under control, here are five smart ways to deal with your small business debt.
1. Refinance Your Loan
When you agree to loan terms before you really know how well your business will succeed, it is possible that you won’t be able to meet the terms of that loan. You may have agreed to monthly repayments that you’re struggling to pay or you may have an interest rate that is really hurting your ability to pay off the loan.
One of the best ways to get your debt under control is to talk with your loan provider about refinancing that loan. When you refinance a loan, you and your loan provider will look at how much still needs to be paid off and come up with new terms that you can manage better. This benefits both of you because it allows you to get out of debt and allows your provider to get the entirety of the loan back.
2. Increase Your Cash Flow
If you want to pay off your small business debt, you need to make more money. Improving cash flow in a small business gives you more money to work with so that you can quickly pay off your debt.
The best way to increase your cash flow is through increasing productivity, building customer loyalty, and selling more product. This means that each member of your team needs to be moving forward at full force to connect with new leads, sell your services or products, and get more cash for you. Other ways to increase your cash flow is to reduce the amount of money you’re spending on products or creating products.
Not all debt is created equal. Some loans may have a different interest rate, you may have borrowed more money in certain areas, or your due dates may be much different. To get out of debt quickly, you will need to prioritize your debts by which need to be paid of first and last.
Start with the debt that has the highest interest rate. The longer you leave this debt, the more money you will end up paying. Put all of your focus on paying off this debt, then move on to your next loan with a high interest rate. While it may seem weird to ignore your other debts or loans, you will pay less in interest through this strategy – getting you out of debt faster.
4. Pay with Cash
Whenever you can, use cash for your new purchases. Rather than adding to the debt that you need to pay off, cash allows you to get the payment out of the way directly so you don’t need to worry about it in the future. Instead of using a line of credit with vendors, write them a check.
There will be some transactions you will not be able to use cash for. While these expenses are okay to use credit or a loan, you should try to make them as few and far between as possible. This will allow you to manage what you owe without getting in over your head.
5. Consider Investment Loans
With small businesses, you’re given a number of different option for loans. One of those loans is known as an investment loan, which gives individuals who invest in you a stake in the company. These can help you manage your debt because investment loan repayments usually are done as your company grows.
Some small business loans allow you to pay a fraction of each sale to your loan providers. This means that if you don’t sell anything, you are not responsible for making a payment that you can’t afford. On the other hand, if you sell a lot of products, you can pay off a large chunk of your loan.
If you’re wondering how to manage your debt, you’re not alone. Getting out of debt is stressful, but with these five tips, your small business can be debt free before you know it.
Caroline Bird is a writer with years of experience in business management. She enjoys meeting new people and reading more books to get inspired for her own book. She is now also writing for MOVE, a member-owned credit union based in Brisbane where provides financial products such as home and personal loans, saving accounts and refinance a loan.