It's perfectly normal for businesses to have debt. Even the most successful companies in the world have millions, even billions, of dollars in debt.
What’s not normal is when business owners, particularly small business owners, begin to feel the mounting pressure of that debt. If debt is causing serious strain on your business, something needs to be done.
According to research by Wells Fargo, a third of all small business owners are uncomfortable with their business debt.
What is business debt?
A business debt is any money owed by a business to a creditor. It can come in many forms, including secured and unsecured loans, cash advances, and leases. It is different from personal debt (such as a home mortgage or personal credit card debt), because the business itself (and not the owner) is responsible for the repayment of the debt.
Businesses of all shapes and sizes come to Creditors Relief every day seeking business debt advice. Most business owners have similar questions when it comes to how to manage and pay off the debt. In this post, we answer some of the most common questions.
Commonly asked questions about business debt
Should I consider bankruptcy?
If you’re struggling to pay off business debt, bankruptcy has probably crossed your mind. After all, it would mean an end to daily financial stress…walking away from your business debts without losing all of your personal wealth -- as long as you didn’t sign any personal guarantees.
Chapter 11 bankruptcy may give your business an opportunity to start over, but it could significantly impact your chances of getting any kind of funding in the future. Also, chapter 11 bankruptcy is not cheap, and it is not a quick solution.
Bankruptcy should always be viewed as a last resort.
In fact, there are several alternative business debt relief options that you should pursue first before you even consider filing for bankruptcy. Keep reading for other questions to ask before filing for bankruptcy.
Where can I start cutting costs?
It could be time to start cutting costs depending on your business and your goals.
For those business owners who want to get rid of the debt as fast as possible, cost cutting should be one of the first steps you take. Draw up a list of your current expenses and eliminate anything that isn’t essential to the running of your business. If it doesn’t directly help you deliver your service or product, it’s gone.
Even business owners who want to invest in order to grow should consider cost-cutting measures if they are in debt. Think of it this way: if you invest $10,000 into an advertising campaign, there is a chance that you might get $100,000 worth of new business. But there’s also a chance that won’t get any new business and eat the $10,000. On the other hand, if you cut $10,000 worth of expenses, you’ll effectively gain an extra $10,000, regardless of anything else that happens. That money is in your bank.
Once you have cut costs, then you can start to think about how to reinvest the money you have saved.
I’ve heard of merchant cash advances. Is this an option for my business?
A merchant cash advance is financing today in exchange for repayment out of tomorrow’s sales.
A merchant cash advance lender can provide you with a significant amount of cash quickly, but will tie you down with strict, often daily, repayment terms. Interest can be steep, too, and repayment will usually take the form of a pre-agreed percentage of your business’s daily receipts. The amount is usually between 10% and 50% of your gross daily revenue.
If you are looking for a quick, short term way to pay off your existing debt, merchant cash advances might be a suitable option. That being said, extreme caution must be taken. However, taking out a merchant cash advance to pay off debt when your business is already struggling is not a good idea. Because the repayment terms are so stringent, businesses can often find themselves requiring another loan or cash advance to pay off the one they already have. This can lead to a series of loan rollovers and refinances that end in a death spiral of debt.
What about speaking to my creditors?
If you’re struggling to pay off debt, one of the first things you should do is speak to your creditors to see if you can extend your payment terms. If you don’t give them notice that you are struggling to pay, you’ll probably get slapped with a late fee.
By opening up a channel of communication, however, you may be able to negotiate more favorable terms. Make the state of your business clear and tell them that you may not be able to make payment at all under the current terms.
There’s a good chance they’ll extend your payment terms for at least 30 days.
Is debt consolidation an option?
If you owe money to several different creditors, business debt consolidation might just be the solution you are looking for.
This option is open to virtually any small business owner with two or more debts.
When you consolidate business debt, you combine all of your loans into one single loan that has a better interest rate and/or better payment terms. It may not save you money immediately, but it will do in the long run, and it makes your business debt infinitely more manageable.
Is there any way I can settle my debt?
Settling your debt is absolutely an option in many cases. Where debts are particularly large and have been outstanding for some time, many debtors are willing to settle for a lower amount on the promise that they get paid a lump sum immediately or that the business sticks to a planned payment schedule.
If you’re committed to following a policy of debt consolidation or debt settlement, it is crucial that you speak to a trained business debt specialist. At Creditors Relief, our business debt experts have helped hundreds of companies all over the country settle millions of dollars in debt, and we can do the same for your business.
Give our team a call on 877-312-6478 for a free consultation. We’ll formulate a budget that your business can follow before working out which of your debts we can restructure, consolidate or settle.