How to pay off your business debt
How to pay off your business debt
Starting, owning and operating your own business is very beneficial. However, the cost of taking on large projects plus day-to-day operations may increase rapidly, leaving you with corporate debt.
Sometimes, you may feel pressured by the amount of funds you owe. If you intend to reduce your debt, you can control your total debt by breaking it down into manageable parts. This is an action plan that you can use to control your business debt.
Evaluate your budget
Of course, you may have completed the hard work and set a strict budget, but if costs continue to increase, it may be time to reconsider your expenses.
The first step in doing this may be the scariest: you need to figure out your total debt. Although this number may seem daunting, you need to be clear about it.
Once you understand your financial situation, you can continue to evaluate your current cash flow and forecast future cash flows. With a clear view of cash flow, you can compare your income and arrears.
Well, it’s time Rewrite your budgetYou may only need to make minor adjustments, or you may need to perform major overhauls. Regardless of the total, you need to create a new category to pay off the debt. Even if you can only afford a small amount of initial expenses, you still need a budget item dedicated to debt repayment. Think of it as the new monthly regular fee.
Grab one of these 7 free budget templates to be the first to assess and track your debt payments.
Restructure your debt
Just because you start to accumulate one type of debt — or multiple types of debt that are more difficult to manage — does not mean that you are always locked in the current structure. You may be able to restructure your debt in a way that is easier to track, manage, and repay.
There are two main ways to restructure debt by applying for a new loan:
- Debt refinancing
- Debt consolidation
If you choose to refinance, you are actually replacing your existing short-term debt with a commercial loan with a lower interest rate.Once you get new Commercial funds At lower interest rates, you can use the proceeds to repay existing high-interest debts. Interest expenses will make you indebted for much longer than you need. In the long run, even lowering the interest rate by a few percentage points can save you some much-needed funds.
However, debt consolidation combines multiple loans into a new loan: a single note to track, maturity date, and interest rate. To consolidate corporate debt, you will get the full value of the existing debt (or the debt you want to consolidate) so that you know exactly how much you need to repay as a whole. Don’t forget to read the fine print on the loan agreement, as some lenders charge an advance payment penalty, which may affect the total amount you need to borrow. If you are approved, then you will use the proceeds to repay your existing loan, simplify your life by making monthly payments, and make future budgets easier.In addition, if you Integrate multiple forms of high-interest debt, You may also benefit from lower interest rates.
Choosing a debt reduction strategy
You can also explore some clever strategies to reduce your business debt. Here are some popular strategies commonly used by business owners:
- “Stacking” or “Avalanche”: After you clearly understand what you owe, what you bring in, and the minimum repayment that can be paid, you can choose to “stack” your debt. Essentially, this means looking at your debt with the highest interest rate and looking at the amount you can allocate to pay more than the minimum repayment amount. Once you pay off the debt at the highest interest rate, you will settle the debt at the second highest interest rate, and so on.
- This Spartan Strategy: This is a simple, necessities-only spending plan for you to clearly indicate your wishes no Spend any money until your debt disappears. This may seem harsh, but if your goal is to reduce debt quickly, it is undoubtedly effective.
- Percentage strategy: Quite simple, but instead of expressing it in terms of X dollars, this strategy allows you to declare percentages of profit, and these percentages will always be used exclusively for debt repayment.
Once you understand which strategy makes the most sense for your business, set a deadline. Based on the information gathered from your budget and the corresponding debt reduction strategy you choose to adopt, you should be able to calculate the time it takes to get rid of debt. Break down your schedule with specific monthly, quarterly, and annual goals. Planning all of this makes it easier to manage and stick to the plan.
Negotiate the terms of your debt
Consider calling your creditors directly to negotiate. They may be willing to work with you to help you pay off your debts on a schedule that suits you. Talking directly with creditors allows you to explore the possibility of lower interest rates, deferred payments, debt consolidation, and more. They may not be suitable for you, but it is worth asking. You don’t know until you investigate your choices. Some creditors may offer grace periods or repayment plan options that can ease the burden and help you succeed. Writing difficult letters Explaining the situation also facilitates the dialogue between you and the creditor.
If handling this process is too complicated or impossible for you, you can also work with a debt restructuring company.
The restructuring company will usually negotiate with creditors and collection agencies on your behalf, collect fees, and may be able to ensure more favorable changes to your existing agreements or even new terms, such as:
- Extend the loan period to reduce monthly repayment
- Negotiate reasonable payment terms at a lower interest rate that suits your budget
- Mediation Settlement Where you pay the agreed lump-sum payment is less than the amount you owe, and the rest of your debt is forgiven
When you hire a company to take over the negotiation, according to Fast book, You may need to sign a written contract, and you may need to set up automatic withdrawals from your bank account to ensure that you keep up with the newly established terms. This is why it is important to be honest about how much you can actually pay each month.
There are several Online and local organizations Provide free business consulting that can help guide you through the entire process and guide you through your choices, such as Small Business Development Center and Fraction.
By adopting some of these strategies and taking responsibility for yourself, you can begin to make progress in repaying corporate debt. By establishing responsible borrowing records and repaying corporate debts on time, you will improve your credit profile and FICO score. This will help you be in a better position the next time you decide to borrow money.
Sources and more learning:
- How to quickly pay off your business debt (Bench company)
- How to eliminate small business debt (Fendra)
- 5 ways to reduce small business debt (Fast book)
- Explore debt restructuring plans (American Express)
Disclaimer: Fundbox and its affiliates do not provide tax, legal or accounting advice. This material is for reference only and is not intended to be provided and should not be used as a basis for tax, legal or accounting advice. Before conducting any transaction, you should consult your tax, legal and accounting advisors. For information about tax laws and how they apply to your business, please consult a tax professional.