Debt is a fact of life for most small businesses, but if you’ve reached a point where your debts are hurting your bottom line, it may be time to rethink your strategy. These four strategies will help you pay down your small business debt.
1. Cut Back on Costs
Cutting back on costs can free up cash that can be put towards paying off your debt. Take a look at your expenditures, and pinpoint areas where you can cut back on costs.
Selling unnecessary assets and equipment is one way to generate some much-needed cash and reduce maintenance costs associated with these items. It may also be worthwhile to contact your suppliers to negotiate lower prices.
In dire situations, you may need to consider cutting back on your workforce to help the company get out from under crippling debt.
2. Consolidate Your Debt
If you have multiple business loans with different rates, debt consolidations loans may be a good option for you. Consolidation combines all of your loans into one single loan with a lower rate.
In most cases, debt consolidation will save you money over the long-term. It also saves you time, as you only have to pay one bill each month.
Depending on your credit or the type of loan you pursue, you may need to put assets up for collateral. And if you have poor credit, you may not get approval for this type of loan.
3. Use the Snowball Method
The snowball method is an effective strategy for paying off your loans quickly. The goal is to pay off the smallest balances first, and put those resources into paying off larger debts.
Once you’ve paid off the smallest balance, take the money you would have previously been paying on that balance and put it toward the next-lowest balance. Rinse and repeat until you are debt-free.
4. File for Chapter 13 Bankruptcy
If your debts have become more than you can handle, filing for Chapter 13 bankruptcy may be your best option. Chapter 13 allows businesses to pay off debt without losing control of their property, and a repayment plan is created to pay off creditors.
Filing for bankruptcy isn’t the best option for every small business and should only be used as a last resort. Many small businesses go under after filing for Chapter 13 because they wind up putting all of their money into repayment and cannot pay employees.
