Business debt is a necessary tool for growth, but when it becomes too much, a company can struggle to stay afloat. Managing business debt requires a holistic approach that involves strategies like improving cash flow, consolidating or refinancing debt, cutting expenses and increasing revenue. This article will discuss best practices for helping businesses reduce their debt and maintain a healthy financial foundation that supports future growth.
Business Debt Consolidation
A common way to manage business debt is to combine it into one manageable loan with a lower interest rate and longer repayment term. You can find business debt consolidation loans at traditional financial institutions, such as banks and credit unions, the SBA and online lenders. Each lender will have their own lending requirements, but in general they may look at the following metrics:
To determine if you’re eligible for a business debt consolidation loan, you can start by adding up payoff balances of each individual debt and calculating the total amount you owe. Then, search for a business debt consolidation loan that offers a lower interest rate or a shorter repayment period than your current ones.
Another method of business professional help for business debt debt reduction is to negotiate with creditors for reduced or even waived interest rates. Many lenders don’t want to lose out on the money they lent to your business, so they’ll offer reduced interest to help you make payments. In some cases, you can also settle business debt for less than what’s owed, but this is a last resort and should only be considered after you’ve tried all other options.
Cutting expenses and increasing revenue are two additional ways to free up funds for paying off business debts. These strategies can be more challenging, but they can lead to better financial health for your company. Taking the time to regularly review your cash flow statement, which provides a point-in-time snapshot of business income and expenses, can help identify any trends that need attention.
Business owners should also prioritize paying off the highest-interest debt first to reduce their financial burden. This can be done by identifying the debts with the highest interest rates and creating a plan to pay them off quickly. Lastly, you should avoid adding new debt whenever possible, as this can lead to higher interest rates and strict borrowing limits.