With a number of lenders tightening up on borrowers and prices for almost everything steadily on the rise, it’s no surprise that many small business owners are already buckling under the weight of increasing business debt. More and more businesses nationwide are filing for bankruptcy protection, with others even closing down due to an inability to deal with the debt that they face. Bankruptcy is certainly one route which small business owners can take to try and save their companies, but this move comes at a steep price, with law fees alone adding up to around $8-10k, not to mention the damage caused to credit scores. In order to avoid this, there are some alternative was to dig out of debt without filing for bankruptcy.
Experts say that in order to avoid the need to file for bankruptcy, the first thing which you should do is identify the parts of the business which contributed to the debt in the first place, and attack them head on. If your expenses are too high or if clients aren’t paying on time, consider ditching unnecessary expenses such as costly office space or expensive phone systems. For unpaid invoices, putting more effort into collections can help with this issue. Another easy way to free up some cash is to consider selling any equipment which is going unused, or even selling scrap.
Rethink Your Budget
If debts are growing steadily, it probably means that your company’s budget probably isn’t working out. Revisit your budget and create a new one based on your business’ current financial situation, including any debts to be repaid. Ensure that the revenue generated by your business is enough to cover fixed monthly costs such as rent, utility bills and employee wages and then some, leaving you room to dedicate a portion of the budget to variable costs such as manufacturing materials.
You should begin by tackling the debt with the highest interest rate first, as these will be the fastest to mount up and multiply if left unpaid. Most likely, this will mean concentrating your efforts on paying off credit cards. Bear in mind, however, that if you have personally guaranteed any of your business’ debt, you should also make these lines of credit a high priority as if they go unpaid, a creditor can come after your personal assets to settle the debt. It may also be a good idea to speak with your creditors and inform them of your financial situation in order to come to an agreement.
Consolidation of your debts into one single loan can help you to reduce monthly credit expenses. There are a range of companies available who buy debt management leads for sale and can help to connect you with a company who is willing to provide you with a consolidation loan. When another company buys your debt, you no longer need to pay your creditors yourself, as you will simply be required to make repayments to the consolidation company, making your debt much more manageable.
Do you have any tips for getting out of business debt? Let us know in the comments.