Guide to Reducing Small Business Debt | Fora Financial Blog
An Entrepreneur's Guide to Reducing Small Business Debt
April 04, 2018

An Entrepreneur's Guide to Reducing Small Business Debt

As a business owner, you’re likely accustomed to spending money on a variety of areas. From payroll to equipment repairs to monthly bills, it can be easy to acquire significant debt. In addition, your debt can be increased if you receive business financing, and need to repay it. No one wants to stay in debt, and reducing it can be challenging. In this post, we’ll detail five ways entrepreneurs can reduce their small business debt and remain operational.

Don’t View All Debt as Negative

Sometimes taking out a small business loan is necessary. Some examples include:

  • If your business is growing at a rapid pace, and you need money to expand or meet increased demands. The need may outweigh the risk, especially if you feel as if the money will be paid back quickly due to growth.
  • If your business has a “slow season.” Many seasonal businesses rely on a business loan to hold them over until their slow season ends, and customers begin visiting their establishment again.

Most small businesses have some type of debt. If you receive additional business financing like a loan, you will inevitably take on debt. Luckily, if you work with a knowledgeable, responsible lender, they should be able to provide you with terms that will work for your business.

Make Necessary Cuts

When trying to reduce business debt, it’s pivotal that you refer to your budget. You should determine if there are cuts that can be made, so that you can put that money towards paying off debts. Although these cuts are very painful, they can be necessary to your business’s future. Some debt relief options could be as simple as monitoring utilities better, or searching for vendors with lower prices.

Stick to Your Budget

Following a budget is just as difficult for businesses as it is for individual consumers. For example:

  • A vendor offers you a deep discount on materials. The money for the extra supplies isn’t in your budget, but you don’t want to miss out on the deal, so you charge the purchase to your credit card.
  • You don’t compare vendor prices prior to choosing one to work with.
  • You allow your employees to work overtime, even though you aren’t sure if it is needed.
  • You simply spend too much in all areas, and it adds up.

These are just a few examples of how you can bust your business’s budget. They might seem minor at the time, but these decisions will affect your business’s finances. If you end up ignoring the constraints of a budget, you may find yourself with significant debt.

Be Careful with Personal Finances

Your small business is also your personal financial lifeline. When business is good, it’s easy to be tempted to yourself to a nice big-ticket item. Still, you should consider if this purchase will hurt you in the long run. Ensure that you aren’t funding a lavish lifestyle with money from your small business. Many business owners set a salary for themselves so that they are always paid the same amount – even when business is good.

In addition, be careful when mixing business and personal finances. Using funds from your business during a personal financial crisis may harm your business in the future.

Consolidate Your Debt

Very few entrepreneurs run their businesses on a single credit card or small business loan. Instead, these multiple lines of credit can be consolidated into a single account. Some of the advantages of debt consolidation are:

  • Your credit score could improve because you’re paying off several debts at once.
  • You’re repaying all your debts with one payment, instead of having to worry about sending payments to multiple companies.
  • In some cases, your interest rate will improve.

Not all businesses will qualify for debt consolidation, and some entrepreneurs may not see small business loans as a viable option because it can take time to pay it back. Debt relief is an individual decision for the entrepreneur, and what works for one may not work for another.

Although repaying debt can seem daunting, we hope this post has educated you on how to responsibly manage it. If you have any other debt repayment tips, let us know in the comment section below!

Fora Financial

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.

Post by:
Paul J Paquin is the CEO at Golden Financial Services and the author of the book “A Complete Debt Consolidation Guide to Become Debt-free.” Paul has spent the last 15-years engulfed in debt consolidation, as the CEO at Golden Financial Services, learning about the most effective debt relief options by researching and testing different methods.