Part of the reality of being a small business owner is that sometimes you’re stuck dealing with debt that can put your enterprise at risk. When the economy is shaky and people are tight with money, small businesses often bear the brunt of the hit. However, dealing with debt for your small business isn’t impossible. There are some steps you can take to keep your small business afloat when times are tough.
Cut Unnecessary Costs
This may be easier said than done, but it is necessary to trim the fat, so to speak. Single out the areas of your business that are money pits and deal with them promptly. Are you paying too much for certain services such as phone systems or office space? Identify elements that are expensive and non-essential; it’s a great way to start attacking your debt issues head-on.
Take Care of Cash Flow
A very common problem for small businesses is a lack of diligence when it comes to cash flow management. When business is booming, cash flow may not be much of an issue. But when keeping your small business afloat while dealing with debt, this becomes a very high priority.
Improper cash flow management is dangerous because it can become a vicious cycle. Particularly in industries with a longer operational cycle (average time it takes from receipt of inventory or services to final cash realization), sometimes profits from one cycle aren’t sufficient to finance the next cycle. Furthermore, you may not be able to get lenders to finance the cycle as you won’t have the security to support the debt.
This is why effective cash flow management is crucial. There are a few ways to help you achieve this goal and ensure your business survives while you’re dealing with debt:
- Visit a professional: Talk to a bank loan professional and develop a good understanding of what is required in order to obtain a loan for a small business.
- Open a line of credit: A line of credit can be a solid preemptive method that can help you in a cash-flow pinch. Make sure you do this before you run into cash-flow issues; having it as a safeguard can help you fund short-term cash flow problems.
- Have a backup plan: Every small business owner should have other potential sources of capital lined up in order to service debt or battle through economic difficulties. This could include tapping into savings, turning to family (if you want to take that route), or an alternative is peer-to-peer lending.
Prioritize Your Debt Payments
If you can afford to tackle some of your business associated debt, be sure that you pay down the highest-interest debts first. Business debts that are personally guaranteed (your personal assets have been put up as collateral) should also be given high priority.
Get a Business Debt Consolidation Loan
Debt consolidation allows you to consolidate all your small business debts so that you make one payment per month. This is a wise option for dealing with debt as your many debts are consolidated into one. This option carries a few considerable advantages:
- Paying one instead of multiple payments per month allows you to better budget your cash
- Interest rates may be lower than the rate you are currently paying your creditors
- Lower interest rates and extended terms can help you reduce total monthly payments and keep your business afloat during hard times.
File a Consumer Proposal
A consumer proposal is very similar to other debt management plans; you make monthly payments to eventually settle your debt. However, they have two main advantages:
- Once a majority of your creditors accept the proposal, it becomes legally binding
- In the majority of cases, you only repay a portion of your debts as opposed to the entire amount
Sound too good to be true? There are some caveats. First, you have to actually be able to make the payments each month. Second, a consumer proposal works only for unsecured debts like credit cards, bank loans and lines of credit. And finally, a majority of your creditors must accept your proposal (it works on a dollar per vote basis, so your larger creditors will have greater power to accept or reject your proposal).
Firms like Hoyes Michalos can help you deal with your small business debt head-on. We have been helping Ontario residents get out of debt since 1999, and we offer a wide variety of expert debt solutions.
If you need more information on how to keep your small business afloat while dealing with debt, don’t hesitate to contact us today!
- Debts You Can and Cannot Include in a Consumer Proposal
- How A Consumer Proposal can Improve Your Cashflow
- Can Business Debts Be Discharged in Personal Bankruptcy in Canada?
- Debt Management Plan or Debt Consolidation Loan. Which Makes More Sense?
- WSIB Debts, Clearance Numbers & Bankruptcy or Proposal