Is your company starting to feel the strain of mounting business debt? If so, it’s probably time to tighten your belt and shed some of the burden.
Keep your company solvent by implementing these 6 business debt relief strategies.
1. Rethink Your Budget
Sometimes bad business debt can accumulate quickly. When that happens, your first thought for how to get out of business debt should be to re-evaluate your budget. You may want to get business debt help from a financial adviser who can work with you to draft a budget that leaves plenty of wiggle room when it comes to covering your operating expenses.
Remember, budgets contain line items that are guaranteed recurring expenses (e.g., rent, utility bills). Beyond these, many other items are expendable and can be replaced or eliminated to save money. Consider how you can reduce your business’s overhead costs. Once this money’s freed up, you can reallocate it toward small business debt repayments.
2. Perform Triage on Your Business Debts
Not all business debt is created equally. Some interest rates are much higher than others, which can result in crippling debt if you let the interest accumulate. If you own a business, bad debt can be tackled most effectively by chipping away at the most expensive financing first and working your way to the least expensive.
Alternately, you may have heard of a debt-reduction strategy known as the Snowball Method. This strategy is essentially the opposite of what we mentioned above: You knock out the smallest debt burden first and continue building momentum this way.
Either bit of business debt advice can work. It’s just a matter of finding one that works best for your business.
3. Prioritize Your Business Debt Payments
When it comes to dealing with bad business debt, many entrepreneurs put it off or refuse to even think about it. Running from the problem won’t fix it, though.
To get some business debt relief, you’ll need to be willing to prioritize your repayment. In other words, you need to act before your small business debt grows into something insurmountable.
Consider making more than just the minimum payment. Depending on your loan type, paying just the minimum due might get you stuck in a cycle in which you’re paying the interest every month without touching the principal.
Be sure to contact your lender and find out what steps you can take to reduce your business debt.
4. Consolidate Your Business Debt
Debt consolidation can go a long way if you want to find out how to get out of business debt. Merging your various debts and outstanding loans into one easy-to-track payment can help reduce stress and debt at the same time. This can be especially true if you consolidate multiple short-term loans into one single long-term business loan.
Here are some of the main advantages of a debt consolidation loan:
- There’s only 1 regular payment to keep track of
- You might be able to consolidate at a lower interest rate
- Fees are often lower than unconsolidated debt
- There’s a clear timeline as to when the debt will be paid off
5. Ramp Up Your Sales
As self-evident as it may seem, increasing your sales can be a lifesaver if you need business debt help. Without consistent revenue, it’s impossible to have a sustainable business debt management strategy.
To help you attract new customers and bring in more sales, here are some of our favorite strategies:
- Ask for feedback through email questionnaires
- Invest in social media marketing
- Increase your social media presence
- Sell the unique benefits of your products or services
- Promote your business locally to incentivize customers (e.g., gift giveaways, email coupons)
6. Talk to Suppliers
Unlike personal debt, business debt is often money you owe to those who supply the raw materials used to make or market your products. Needless to say, you can’t just skip town and run from your creditors. Instead, you need to build on and solidify the relationships you have with your business’s creditors.
If you’re on good terms with your suppliers, ask them if they’d be willing to extend a little leniency your way. If you’ve been a reliable and respectful customer, they may be willing to offer you a debt repayment plan on more favorable terms. Your creditors want your company to succeed too. After all, they won’t benefit from watching your business fail.
Analyze Your Business Debt with the Debt-to-Equity Ratio
One of the best steps you can take when drafting a debt-reduction strategy is to determine your debt-to-equity ratio.
Follow this simple formula to find your debt-to-equity ratio:
Total Debt / Total Equity = Debt-to-Equity Ratio
This ratio says a lot about your business’s financial health. It lets you know how much you owe lenders in relation to how much equity you own in the business.
We’re often asked: How much debt should a company have? To be on the safe side, you always should strive to have a debt-to-equity ratio under 1. If your ratio is above this figure, then you owe more money than you have coming in. The lower you can keep your debt-to-equity ratio, the better.
Shedding Your Small Business Debt for Good
Dealing with business debt is never a fun experience. It can, however, be the most important thing you do for the long-term financial health of your business.
If you find that you’re in over your head and need business debt solutions, don’t hesitate to search for small business consulting services that can provide assistance, such as financial advisers or business debt management professionals. Usually, they have the experience and means to weed out inefficiencies in your business’s debt reduction strategy and can even negotiate better repayment terms with your lenders.
Your ultimate goal in finding business debt relief should be to implement a debt reduction strategy that cuts to the heart of the problem — overborrowing and underpaying.