Due to interest payments, businesses with excessive outstanding debt may experience decreased cash flow. In addition, they may have difficulty accessing additional capital and may even experience a negative impact on their credit scores depending on the business structure. If your business is in a financial situation like this, you should try to repay your debt as quickly as possible. Fortunately, there are numerous debt reduction strategies available to small business owners. This post will review how you can responsibly pay off your small business’s debt and improve your overall financial health.
How Can You Pay Off Your Business Debt?
1. Create a Strict Monthly BudgetEven if a lender is willing to extend your loan term, that doesn’t mean that it’s the right decision for your business. Paying off debt in a shorter period will cost more on a monthly basis. Plus, the amount you owe will be less because there’s less time for the debt to accumulate. Typically, the amount of new money you owe your lenders will eventually be greater than what you can earn by investing. While a reasonable ROI to expect on investment is under 10 percent, a typical business credit card may have an APR upwards of 24 percent. Therefore, debt should be one of your highest priorities when creating a monthly budget.
2. Decrease Your Business’s SpendingThere are expenses like payroll and rent that you must consistently afford to maintain your operations. However, there are also costs that you can cut. For example, perhaps you pay for a weekly catered breakfast or use marketing services that aren’t generating leads. In some cases, business owners find they’re overspending on inventory that isn’t selling. Until you pay off your debt, try cutting costs to save money. To monitor your spending, you should create a functioning budget on a line-by-line basis. You should first review your loan’s interest rate when you do this. 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. After creating your budget, you may be surprised by how many expenses your business has that doesn’t justify being deeply in debt.
3. Consider Debt ConsolidationIf your business has multiple debt payments due to different lenders, you may want to consolidate your debt. Although debt restructuring firms are often criticized for being 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 LendersContact your lenders to discuss your small business loan terms if your business debt structure isn’t working for you. Typically, lenders will be willing to renegotiate the payment period, monthly interest rate, and total debt you owe. 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. Most likely, the lender will want to work with you again in the future if you’re a good borrower. Therefore, you shouldn’t be afraid to discuss your repayment options with them.
5. Increase RevenueAnother way to reduce your debt is to grow your business and increase sales. Here are a few ways you can increase revenue:
- Offer new products or services: Could you increase sales by offering additional products or services? If you think that customers will buy these items, this could be a worthwhile investment. However, if you need to make significant investments to increase offerings, you could incur more debt.
- Extend your business hours: You may need to work longer hours to make more sales. Increasing business hours can be challenging, especially if you don’t have a large staff. However, if you can ensure that you and your team aren’t overworked, it may help you generate revenue.
- Try some new marketing tactics: There are many ways to market your business. You could post on social media, start email marketing campaigns, or post flyers to increase sales. The more you spread the word about your business, the easier it will be to earn more sales.