Most small businesses need to take on some debt to start up, but taking too long to repay them or taking on too much debt can be harmful in the long term. Here are 5 solutions to settle business debts.
When a small business has any outstanding debts on its books – depending on how much – interest rates alone can significantly affect business cash flow. Additionally, having too much owing and struggling to repay them negatively impact a business’s credit and can negate the possibility of borrowing more in the future.
If your current situation sounds similar, you should settle those debts as soon as possible. Don’t lose hope because many debt reduction solutions are available for small businesses.
This post will offer 5 solutions that you can implement to lower your debt and increase business cash flow.
The 5 Solutions:
Create a Firm Budget
Extending a term loan may buy you more time to repay but could not be the right decision. Repaying a debt quicker may cost more monthly but prevents debt accumulation and accrued interest.
A business line of credit usually offers an APR of 20%, and investment brings in an ROI under 10%. Therefore, paying off your debts quickly will allow you to owe less over a long period and increase cash flow, or borrow again, sooner.
Cut Some Costs
Certain monthly operating costs, like payroll or rent, cannot unusually be cut. However, other items on your business costs list give you some wiggle room.
You may be able to cut costs on inventory that doesn’t sell well, remove some workplace perks, like free lunches, or end marketing campaigns which aren’t performing well.
To create and monitor this budget, you should first review your loan’s interest rate and create a line-by-line list of your business expenses. Next, assign a value to every cost that isn’t necessary. If the expense yields a lower ROI than your term loan’s APR, you should remove that expense.
You may be surprised by how much you can cut from your operating costs to allow you to repay your loan faster.
Consider Debt Consolidation
If your business has more than one outstanding debt with separate lenders, you should consider consolidating your debt. Although debt restructuring can be tricky, a reputable debt consolidation firm can help lower your debt repayments.
Consolidating your debts makes repayment more straightforward and streamlined and may allow for a more flexible solution.
Restructure your Loans
Reach out to your lenders to discuss your loan’s terms if the current structure doesn’t work for you. Lenders typically are willing to work with a struggling business if it means you can repay them without going out of business. Your success means they’ll get paid!
Lenders won’t dismiss your debt, but you may come to a mutually beneficial structure if you’re flexible. For example, if you make payments on time, your lenders may be willing to decrease your interest rates.
Working with your lender isn’t just good for the present loan but will also help you borrow from them in the future. Being in good standing goes a long way in creating working relationships with lenders to facilitate more funding down the line.
Increase Your Bottom Line
Suggesting to “make more money” may seem obvious, but the most effective way to reduce debt is to improve your bottom line. Here are some ways you can increase sales and grow your business:
Offer a new product or service: Offering new services or products may give you more value with existing clients. Make sure, however, that introducing more products or services doesn’t cost you more than you can sell and increase your debt.
Extend business hours: Sometimes, making more sales is simply working more hours. For example, in the restaurant industry, staff payroll is commonly a business’s most significant expense; expanding your working hours may allow for more daily sales.
Try a new marketing campaign: You can increase sales and your client base by implementing a social media marketing campaign, starting email blasts, or print marketing. Create brand awareness and lead generation campaigns to get more business flowing your way.
Final Thoughts
We know that having a large debt can be very stressful. Beginning to chip away at your debts with monthly repayments will go a long way in working your way out of the red. Create your budget, reduce your expenses, and renegotiate your loan terms if you can.
Capital Quickly is passionate about helping small businesses save and grow by offering effective financing solutions, including working capital and term loans for debt consolidation. To find the most suitable funding for your business, call 1-888-709-7446 or email us.