Managing a business debt can be a difficult thing. Not only is it frustrating, scary, and lonely, it can also take a long time to figure out and a few fails. That being said, business debt should not be ignored as it will not go away on its own over time. In fact, the best thing to do is to face the debt head-on and to handle it as the business owner that you are.
In this guide, you will find a few options for handling your business debt, as well as a few things to bear in mind when you consider your options.
Consider your options and take action
When it comes to dealing with business debt, it can be a very lonely and scary time. It’s easy to feel overwhelmed and lost, thinking that you have no options. Thankfully, this is not the case. When it comes to any sort of debt, the best thing to do is to deal with it as early on as possible.
The more you ignore it, the worse it will get. Handling it in different ways as early as possible will minimise the potential loss, help with your customer and professional relations, and save you a lot of stress in the future.
You should also be happy to know that there are multiple ways in which you can handle your debt. Here are a few key ways that you should and could manage your debt:
Consult your banks about your loan
If you took out a bank loan to start your business or help it through a tough time, then the first thing you will want to do is contact the bank about the possibility of renegotiating the repayments. Ideally, they will be able to prolong the loan, meaning that you have more time to pay it back.
Now, it is essential to understand that this may prompt them to increase their interest rates, which will mean that you will have more to pay back. That being said, at the very least, this should reduce your monthly payments due for the moment and give you a little extra wriggle room. Do be sure to listen to the higher interest rate, however, as it could be to the point where it is not worth extending the payments.
Spend any extra free time on free advertising
The best way to bring more money in is to bring in more clients. Now, if you are having to deal with business debt, then the chances are that you will not have much time to spend on extra advertising; however, nowadays, there are so many ways to advertise your business for free, in an efficient manner.
For example, use social media more. Use more platforms, post more, and do your best to reach a wider audience. For that, consider the comments that your followers have left, looking for suggestions or improvements that could be made to your products or services.
You could also contact a fellow business on social media, one with whom you could collaborate to make something that will appeal to both audiences. By working with them, you will automatically be reaching a wider audience, and thus making your brand better known.
For a different tactic, try focusing on SEO. SEO has been proven to be one of the most efficient ways of advertising today, and it is largely free. However, it does take some time to figure out and conduct some research, so prepare to set some time aside in order to do it properly.
Hold a sale
If your sales are low at the moment, consider holding a sale. You do not have to decrease your prices exponentially; however, even a small amount could go a long way. This will entice more people to try your product or service, as new customers who have never tried your brand may be more excited to try it with a one-time deal.
This will also be a pleasant surprise for your loyal clients that could further ensure their loyalty to your brand and may encourage them to share your brand with more of their loved ones.
Hosting a sale is also a great way to create new content for your social media pages and website. It will be something new and eye-catching that your followers will be intrigued by.
Reduce your expenses
The next obvious step to take if you are in debt is to reduce your expenses. Consult your monthly business accounting statement to see where you can cut costs. Of course, you should not go at it without carefully considering each expense, and do be careful about what you change.
For example, if you have employees, then remember that your business will rely on their work, and you will need them to help build up the revenue again. However, other things like food expenses, bonuses, production costs, rent, and other expenses can either be cut out or changed.
If you can, it is best to consult an accountant about these. An accountant will be able to tell you precisely where it is wisest to cut costs and will have the knowledge about other companies, locations, and machinery and materials that you could use to reduce the payments that you are making now.
Appeal to more investors
Your current investors will most likely not want to invest more into your business as is. However, they will likely not want to leave it either. Even if they see that the business appears to be going through a hard time, if they leave now, then they will have no chance of getting their money back, and so, they should stick around.
Speaking of investors, though, an excellent way to bring more money in is to simply bring in more investors. The best way to do this is to review your business plan and take the time to create a good enough presentation to show the business’ history, where it is currently, and how you plan to increase revenue and profit. Hopefully, a detailed and confident plan will interest enough investors or the right investor with the right amount of money to help you out of this current situation.
When a new investor joins your company, you will have less control. It’s important to keep this in mind. Most investors expect shares in the businesses in which they invest, and with these shares comes their right to vote and to make certain modifications.
Consider borrowing money from a loved one
If you have the option, then do consider borrowing money from a loved one. The good thing about borrowing money from a friend or a family member is that they will likely be more patient with you, will automatically want to help you, and will not be so severe with the reimbursement. Borrowing from them will also not affect your credit score, as it would with a bank.
However, just as is the case with other investors, a family member can very easily ask for a share in the business and may not want to return the share in exchange for reimbursement. So, do be careful with the loved one who you choose, as you may be working with them for a long time.
The next thing to consider with family is the effect that it will have on your relationship with them. No matter how close you are, lending and borrowing money can create tension in a relationship. You may not want to put that on the line for your business, especially if it runs the risk of going bad.
Consolidate business debt
Finally, you can also try to consolidate your business loan. Debt consolidation is a way of taking out a new loan to pay off your current debt.
With this new loan comes new terms. All of your debts become one large one. The idea is that you can get an overall lower interest rate, lower payments, and other favourable terms.
Now, as ideal as that may sound, debt consolidation does come with its fair share of risks. Debt consolidation can severely affect your credit score. This makes it difficult for you to take out a loan in the future, should your business need one.
It can also come with some high fees and may not end up being the interest rates that you hoped for. Just as with a normal debt, you risk losing the collateral you provided. If the business does not improve and cash flow does not increase, you will have more debt than before.
Conclusion
As you have seen, being in debt does not mean your business is over. All businesses have to face hard times at one point or another.
As previously stated, tackle your business debt as early as possible. This will increase your options, help your professional relationships, and make the overall task easier for you.
