5 Reliable Ways for Businesses to Dig Out of Troublesome Debts

Published: May 27, 2017

Running a business is not an easy deal, especially for the beginners who are dreaming about a startup.  As the lenders are tightening up the hold on the debtors, and the cost of everything from raw materials to shipping is on the rise, many of the small to mid-level business owners are now straining with the weight of exponentially increasing Business Debt.

The situation is especially common in Las Vegas. Everything is expensive in the Sin City, and running a business successfully requires a lot of funding. Many small scale businesses and startup companies struggle to make it in Las Vegas. To overcome the day to day financial struggles, such businesses have to depend on loans. Things turn more complicated when the loan payments turn out to be greater in amount than the actual revenues.

Business Debt - piggy bank

Bankruptcy is a solution that many of the small-business owners resort to in an effort to salvage their firms, but this comes at a price. The filing process and attorney fee can go up to around $8,000 to $10,000. Moreover, bankruptcy has long-term negative impacts on both the business’ and the personal credit score of the owners.

To avoid such an ill fate, there are many ways small to medium level business owners can try to dig out of troublesome debts. Business Debts consolidation is a much better option than filing for bankruptcy as it helps avoid some major pitfalls. Let’s explore a few such tips from the experts.

1) Cut down unnecessary costs to free up funds

As a businessman, you need to understand the parts of a business that may put you in debt at the first point. There may be many reasons for this like some of the clients not paying on time or the running expenses exceeding the revenue. Sometimes, it may be covered by ramping up the collection efforts or ditching the overhead due to some costly but unnecessary infrastructure. You may also think of freeing up cash by selling off the unused or unwanted office equipment.

You can also read Real-time financial Data for your Business, and how it can help you.

2) Revise your budget

If you find the debts piling up, it may probably be due to the fact that your current budget is not working out well as per the plan. You need to revise the existing budget or create a new one based on the existing financial situation in order to optimize business revenues with a plan to cover the fixed monthly costs and allot a sizable portion of the budget to meet the variable costs.

If you have credit-card debts, ensure that you pay it off with priority, otherwise it may keep on building exponentially to put you in real trouble. When handling multiple debts while availing small business loans, an effective way to keep a track of the budget is to use some accounting software like QuickBooks, Peachtree, or any free web-based programs.

3) Plan and prioritize the loan payments

As discussed above, you need to try and tackle the highest-interest loans first when prioritizing debt payments, which makes credit card debts the priority. Next, if there are any personal guarantee loans or debts, in which a lender may come after your personal assets upon defaulting, those should be counted as high priority debts to be paid off.

4) Speak to creditors

If you study the online market, you can see that there are a lot of debt settlement options available now. After speaking to the creditors, you may get an opportunity to explain your business hardships and ask for better terms. They may be able to put forth different payment or settlement plans based on your troublesome financial situation. Make them understand that the more they help to reduce Business Debts, the faster you can pay it off.

5) Debt consolidation

The best case scenario if you are troubled with multiple loans is to consolidate several shorter-term loans into a single long-term loan, which give your more room for repayment and also a lesser interest rate. However, this needs to be done with a deep understanding on debts and all your possible financial avenues to recover from it. There are formal repayment plans, such as a CVA, which pool all your debts together and allow you to repay them over an agreed amount of time.

What to consolidate?

You can consolidate any sort of debt such as loans, credit card payments, fund advances etc. and pay them off altogether with a single loan, which will leave you beholden to a single creditor. Debt consolidation is different from loan refinancing as it just applies to a single debt.

For whom it is ideal?

Consolidation is ideal for small businesses which have multiple high-interest, short-term loans, which may be better paid off over a longer period with a lesser monthly payment. Not only this, but consolidation can also simplify the accounting process with only one bill to be cleared.

A key insight: “Debt consolidation isn’t a silver bullet to resolve all your financial problems at once.”

What to consider before consolidating?

First you need to have a clear understanding of the number and type of loans you are going to consolidate. One important thing to know is that you don’t have to think of consolidation at all if it is a manageable amount. You should also keep in mind that there is no such rule that it is mandatory to consolidate all the debts you have. You can make a personalized choice regarding which of all your debts needs to be prioritized and consolidated to improve your financial stand.

On a different note, read How to practice entrepreneurship before starting your company.

Whom to approach?

There are a lot of frontline debt consolidation service providers in the US, and you need to do some shopping around to understand their terms and conditions to choose one. The important factors to consider are the interest rate, fee (if any), and the monthly payments. You should be able to calculate how much you need to pay off during the entire course of the consolidation process. Talk to all the providers to clearly understand the terms and conditions of each to make a selection.

When you are struggling to dig out of debt through the above methods, most of the times you may be finding it difficult to negotiate with the creditors or to identify your exact financial situation. Credit counseling agencies and consultants can help you significantly in such instance to give you better inputs about your situation, and they can help you avoid any debt consolidation traps.

Don’t panic if you are in business debts, but just be more diligent and insightful to explore your options and find out the best possible way out. With user-friendly debt counseling, assessment of financial situation and selection of debt resolving avenues will not be a difficult task.

Author Bio Cindy Hawthorne is a marketing and communication expert. She also serves as content developer with many years of experience. She has previously covered an extensive range of topics in her posts, including business, debt consolidation and start-ups.