Four Ways to Quickly Pay Off Business Debt
Businesses with excessive outstanding debt may experience decreased revenues (due to interest payments), difficulty accessing additional capital, and – depending on the structure of the business – may even witness a negative impact on the owners’ credit scores. If your business is in a situation like this, you may be looking for ways to pay off your debt as quickly as possible.
Fortunately, there are numerous ways you can quickly pay off business debts and create a greater sense of financial stability.
How Can You Pay Off Your Business Debt?
1. Create a Strict Monthly Budget
Even if a lender is willing to let you extend the terms of your loan, that doesn’t necessarily mean that doing so is a good idea. Paying off debt in a shorter amount of time will cost more on a monthly basis, and the amount of money that you pay overall will be significantly less, since there is less time for the debt to grow.
Unless there is something truly exceptional about your business, the amount of new money you owe your lenders will eventually be greater than the amount you can earn by investing (whether in your business or elsewhere). While a reasonable ROI to expect on an investment is likely under 10 percent, a typical small 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 Unnecessary Costs
Although there are some expenses that your business will consistently have, like employees’ salaries, rent, and insurance, there are likely many costs that could be temporarily avoided. For example, perhaps you’re paying for a weekly catered breakfast for your staff, or you have marketing services that aren’t generating consistent leads. Until you pay off your debt, try to cut down on these types of costs.
Creating a functioning budget is something that should be done on a line-by-line basis. You should begin by looking at the interest rate on your loan and try to assign an ROI value to every expense that isn’t absolutely necessary. If the line item in question yields a lower ROI than your loan’s APR, then you should probably decide to eliminate that expense (at least temporarily). You may be surprised by just how many expenses your business has that don’t justify being deeply in debt to maintain.
3. Consider Consolidating Your Debt
If your business has multiple debt payments due to different lenders and providers, then you may want to consider consolidating your debt. Although the debt consolidation industry has 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.
Debt consolidation can serve multiple purposes. Not only does having all your debts in one place make it easier to submit monthly payments, you may also be able to access more flexible payment options.
4. Negotiate with Your Lenders
If the structure of your business’ debt is currently problematic, then you may want to consider contacting your lenders to renegotiate your terms. Typically, the things that lenders will be most willing to renegotiate are the payment period, monthly interest rate, and the total amount of debt that is owed.
Lenders are unlikely to simply “dismiss” your debt, but if you’re willing to be flexible, you may be able to negotiate a mutually beneficial exchange. For example, if you’ve historically made your monthly payments on time, your lenders may be willing to decrease interest rates in exchange for you paying them back sooner.
Conclusion: Make Paying Off Debt a Priority!
As a business owner, having a large amount of debt can be very stressful. However, if you’re able to pay at least some of it back every month, you’ll be moving in a positive direction. If you can create a strict budget, decrease expenses, and negotiate or consolidate when necessary, your business will make significant financial progress.
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.