5 Ways to Quickly Pay Off Business Debt
Businesses with excessive outstanding debt may experience decreased capital due to interest payments. In addition, they may have difficulty accessing additional capital, and, depending on the business structure, may even witness a negative impact on the owners’ credit scores.
If your business is in a situation like this, you should try to repay your debt as quickly as possible. Fortunately, there are numerous ways you can quickly pay off your small business’s debts. In this post, we’ll review how you can pay off your debt and get back in a healthy financial standing.
How Can You Pay Off Your Business Debt?
1. Create a Strict Monthly Budget
Even if a lender is willing to extend your loan term, that doesn’t mean that it’s a good idea. Paying off debt in a shorter period will cost more on a monthly basis. Plus, the amount that you owe will be less because there’s less time for the debt to grow.
Typically, the amount of new money you owe your lenders will eventually be greater than the amount you can earn by investing. While a reasonable ROI to expect on an investment is likely under 10 percent, a typical business credit card may have an APR that is upwards of 24 percent. This means that when you’re creating a monthly budget, debt should be considered one of your highest priorities.
2. Decrease Your Business’s Spending
To maintain your operations, there are expenses like payroll and rent that you must consistently afford. However, there are also costs that you can. For example, perhaps you pay for a weekly catered breakfast, or you use marketing services that aren’t generating leads. Until you pay off your debt, try cutting costs when you can to save money.
To monitor your spending, you should create a functioning budget on a line-by-line basis. When you do this, you should first review your loan’s interest rate. Then, assign an ROI value to every expense that isn’t necessary. If the item in question yields a lower ROI than your term loan’s APR, you should eliminate that expense for now.
After creating your budget, you may be surprised by how many expenses your business has that don’t justify being deeply in debt to maintain.
3. Consider Debt Consolidation
If your business has multiple debt payments due to different lenders, then you may want to consolidate your debt. Although debt restructuring firms are often been criticized for being generally misleading, if you’re able to find a high-quality consolidator, you may be able to reduce the total amount that you owe.
If you consolidate your debt, it can serve multiple purposes. Having all your debts in one place makes it easier to submit monthly payments. Plus, you may also be able to access more flexible payment options.
4. Negotiate with Your Lenders
If the structure of your business’ debt is problematic, then you may want to contact your lenders to discuss your terms. Typically, lenders will be willing to renegotiate the payment period, monthly interest rate, and the total amount of debt that’s owed.
Lenders are unlikely to dismiss your debt. However, if you’re flexible, you may be able to negotiate a mutually beneficial exchange. For example, if you make payments on-time, your lenders may be willing to decrease your interest rates. They’ll likely be happy to have you back them back sooner, so it’s a win-win.
5. Increase Revenue
Another way to contribute to lessening your debt is to find ways to increase sales for your business. Offer new products or services, extend your business hours, or try some new marketing tactics. It can be challenging to know exactly what will resonate with your audience, but if you know that certain methods work for your business, focus on them as you try to lessen debt.
Conclusion: Make Paying Off Debt a Priority!
As a business owner, having a large amount of debt can be very stressful. However, if you can pay at least some of it back every month, you’ll be moving in a positive direction.
If you can create a strict business budget, decrease expenses, and negotiate when necessary, your business will make significant financial progress.
Editor’s Note: This post was updated for accuracy and comprehensiveness in August 2019.
Editorial Note: Any opinions, analyses, reviews or recommendations expressed in this article are those of the author's alone, and have not been reviewed, approved, or otherwise endorsed by any of these entities.