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Business Debt: How Much Is Too Much to Carry?

By Allan Smith, writer
Feb 23, 2016
Image Credit: Utah778 / Getty Images
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Debt can definitely be a useful tool to start off with your business, but all small business owners need to ensure that their debt is working for them and not against them.

When a considerable amount of expenses is leveraged for servicing debt rather than investing in your business, small business firms start struggling and this can make them fall into trouble when debt and expenses outpace revenue.

Whether you’re handling late-paying clients or going through a sudden drop in company revenue, there are multiple issues that can make business owners be overburdened with debt.

In fact, as per a poll revealed in 2014, it was seen that more than 46 percent of business owners are in a precarious state about the level of debt that they presently carry.

But for every problem, there’s a solution and small business debt is also not an exception. As an owner, it is vital for you to get on top of your debt by making the most effective New Year's resolutions.

Although you might think that it’s too late to resolve now, in the world of finance, it’s never too late to make positive decisions. If you’re not feeling comfortable with the levels of debt that your business is carrying, here are some tips to take into account.

Related Article: Dubious Debt: Could Your Bad Credit Hurt Your Business in 2016?

Take a Close Look at Your Debt

Are you managing your business finances through spreadsheets? If you answered yes, you’re most probably not totally aware of your total debt.

If you’re still not aware of the total debt that you owe, you can never make a plan to get out of it. You require having this information always at your fingertips.

You may use small business accounting software like Xero, which allows you to see exactly what you owe and also works out the optimum debt level for your business.

Prioritize Your Business Debt

As you owe too many debts, you should be aware of the fact that not all debts are created equally. Ask yourself what would happen if you didn’t pay a particular debt and make decisions of prioritising your debts based on the seriousness of the consequence.

The more unpleasant the result, the higher priority the debt is. Most often, payroll takes the first position as if people don’t get paid at the right time, they would have no incentive to work.

So, before any payments to suppliers and vendors, focus on clearing payroll.

Renegotiate Your Terms on Bank Loans

How about some negotiation with the bank? Well, if you are confident about your convincing skills, you can give it a try.

Renegotiate the terms and conditions of the bank loan after relating your current financial situation. If you think you could do with short term cash, you could ask for higher interest rates so that you could reduce the monthly payments easily.

Related Article: Money Matters: Financial Literacy for Small Businesses

Talk About an Alternative Payment Plan

When you’re facing trouble paying off your monthly loan installments, you could speak to your creditors before they come behind you and ask for money.

If you can reshape an alternative payment plan and show them how you would maintain your payments, that would be more receptive. After all, any adjustment is done in their best interests. If you go under, they won’t get a penny from you.

Should You Refinance Your Small Business Debt?

When none of the above mentioned steps work, you might consider refinancing your business debt. Take a look at some valid reasons to consider refinancing.

Refinancing makes life simpler:

If you’re tired of juggling between multiple due dates, bills and interest rates, refinancing is the answer to all your worries. Refinancing will provide you with a single loan and you can just keep track of one payment rather than several.

Refinancing saves your dollars:

Saving is one of the biggest reasons to refinance. You can switch to an interest rate which is much lower than that you’re currently paying. Interest rates actually keep you in debt for a longer time and if you can decrease the rate even slightly, you can save some big bucks in the long run.

Refinancing helps grow your business:

You can improve cash flow by refinancing your short term debt into a long term loan. There will be more capital available every month and you can concentrate on what matters most.

Refinancing boosts your credit score:

Combining your business debt into a single payment could even refurbish your credit score. Whenever you refinance a commercial loan, you might see a sudden jump in your credit score as this reduces your credit utilization ratio.

Related Article: Will Work for Funding: 7 Ways to Finance Your First Small Business

Henceforth, whenever you’re strangled with excessive business debt burden, keep in mind the above mentioned options including refinancing. Search for a better loan in order to profit in such a situation.

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Allan Smith
Allan Smith
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Allan is an experienced blogger and business strategist from 2009. He notes down his thoughts on a regular basis through his blog At its core, writing is a part of communication. Allan loves to communicate with people via his write ups. He shares his thoughts, advices, tips, and tricks related to finance, marketing, lifestyle, and on many other topics which are closely related to daily life. He believes blogging helps a person to think deeper, which is the reason he loves to write so much.
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