7 Top Tips for Dealing with Business Debt

company cash crisis top tips dealing with excessive business debt management

U.S. businesses have never owed more money. Our nation's businesses are staring down $6.3 trillion in debt. While holding some debt is crucial to growing your business, too much debt is a surefire way to go bankrupt. It's even tougher for companies to stay debt-free these days with inflation, a tight labor market, and supply chain disruptions.

But what happens if your business goes belly up? Or maybe you are just having a slow month, or slow few months? You need to handle your debt but have no idea how to pay back lenders when you have no money.

Dealing with excessive business debt isn't impossible, and in fact, isn't even very difficult if you know what you are doing. That's why today, we are bringing you our list of seven top tips for dealing with business debt.

Let's get started on confronting and crushing your business debts.

1: Check Your Interest Rates

First and foremost, sit down and review your loans. Check and find out which loans have the highest interest rates, and then prioritize paying off those high-interest loans.

High-interest loans only serve to put you further and further in debt. If you are always stuck paying interest you will never make any payment on your principal balance.

2: Contact Your Lenders 

Creditors make their money from interest payments. So if you're not making payments, they're not making money. Call your lenders and explain your financial situation. Chances are, they'll renegotiate your loan.

Renegotiating your loans usually involves discharging some debt or lowering your interest rates. 

Usually, lenders ask that you make fixed monthly payments in exchange for the lower interest rates.

if you can't renegotiate, try opening another account with a lower interest rate. You can then transfer your balance to the lower rate bearing account.

3: Tally Your Expenses

Nearly every business has excess expenses. From too many Friday lunches to excess technology, you need to prioritize your expenses when you're in debt. Make a list of all your costs and decide what's essential and what you can go without.

Take your "go without" costs and completely eliminate them. Don't worry about business perks until you can keep your business running.

4: Solidify Your Supplier Relationships

Your business needs to keep generating money to pay back creditors. You're in debt, but you can't just sell off everything and run for the hills, at least not if you want to keep your business running.

This means you'll need to keep a good relationship with your suppliers. Reach out and let suppliers know you might make late payments. Arrange a plan so that you can keep getting the materials you need to operate your business.

5: Set Some Goals

Goals are the great motivators. Set some goals for your clearing your debt. Decide how much you want to pay and when you want to pay it, and then stick to that goal. Write down your targets and if you achieve them to become debt free.

Make yourself beholden to your own best interests.

6: Factoring

Factoring refers to totaling your accounts receivable and selling the rights for a percentage of their total value. For instance, your clients might owe $5000, but you sell the rights for $4500. You are taking a loss but also getting a lump sum to help pay off creditors.

Never underestimate the value of cash when you're trying to pay off a large debt. Liquid capital is by far the easiest, quickest way to pay off your debt.

7: The Business Debt Last Resort: Bankruptcy

No one wants to file bankruptcy. The process is long, drawn-out, and painfully introspective. You're faced with your failures, be they your fault or someone else's mistake.

If you are filing bankruptcy then you are giving up the game. And that's okay. Fifty percent of business fail in their first five years. Bankruptcy exits so that if the worst should occur, you're not completely without help. There is a final way out of debt.

If you're filing bankruptcy, you're probably filing Chapter 7 liquidation. Chapter 7 bankruptcy is like hitting the reset switch. You're discharging all debts like unsecured personal loans, medical debt, and credit card debt.

Essentially, you're turning your business assets over to a bankruptcy trust who then sells the assets and goes after outstanding accounts, pays taxes, deals with creditors, etc.

However, there are some important things to know about Chapter 7 bankruptcy:

  • This bankruptcy won't discharge taxes owed.
  • Chapter 7 bankruptcy destroys your credit. Your score will dramatically drop and the bankruptcy stays on your credit report for up to 10 years; long after your score recovers. If your credit does take a hit, consider contacting a credit repair firm like Lexington law credit repair reviews.
  • However, Chapter 7 bankruptcy only harms your credit if you are personally liable for the business debt. Depending on your business structure, you can file Chapter 7 without hurting your credit score.
  • You can only file Chapter 7 once every 8 years (again, this varies depending on if you are personally filing bankruptcy or if your business entity files bankruptcy.
  • Chapter 7 rules vary state by state. You need to check your local regulations before making any decisions. Better yet, you need to consult a bankruptcy lawyer.
  • Not every business qualifies for Chapter 7. Again, consult with your bankruptcy attorney to see if you are even eligible to file.

Building Your Startup

Building a business is difficult. There is no shame in asking for some startup advice, especially if you are facing business debt. In fact, many entrepreneurs ask for help. So many, in fact, that we have dedicated an entire website to helping startups flourish.

If you're looking for startup advice, everything from boosting business with Instagram ads to maximizing your revenue, make sure to follow our blog! We'll keep you updated with the latest and greatest from the startup world.

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