4 Small Business Debt Hurdles and How to Overcome Them

overcoming small business debt

All businesses deal with a certain level of adversity starting out, which is why it is so important to have a solid plan. However, while hindsight is 20/20 and foresight is always recommended, you can’t help but feel trapped once you’ve made a few crucial mistakes and are being confronted by a seemingly insurmountable mountain of business debt. Whether you’re in the process of founding a new company or have already traveled down the wrong path with your small business, you may want to learn how to recognize and overcome the following four debt hurdles:

Overwhelming Commitments

Between credit cards, startup loans, and monthly bills it can be easy to overwhelm yourself unexpectedly. One moment things are going fine and the next you’re up to your neck in expenses that seem to double every time you turn around. If you’re monthly obligations consume more than 50% of your company’s profit you need to:

Use debt consolidation loans and balance transfer cards to centralize payments and simplify management
Use cash, check, or debit as your payment methods from now on, except in emergency situations
Sell some of your assets to repay debt all at once and build back up from there
Engage in independent negotiations with your creditors or utilize a professionally drafted company voluntary arrangement (CVA) to create a revised payment plan
Cancel all non-crucial subscriptions and services
Reduce overhead and payroll expenses

Even if your company is profitable at the moment, if you allow debt to consume more than half of the annual profit you’re asking for trouble, which is why it is imperative to take the above steps as soon as possible.

Inability to Obtain Additional Financing

What if you’re company’s credit is horrible and you can’t get any financial assistance to help you deal with the rising operating costs? The good news is you still have a few options:

Look into secured loans. Be aware that you will have to use some of the company’s assets as collateral, which means they can be seized if you default on the loan.
Find out whether you’re eligible for small business grants.
Get a copy of your business credit report and create a debt reduction plan to begin the process of repairing the company’s credit rating.

Prioritization Problems

So you’ve got a bunch of debts and don’t have enough money to keep up with them all. How do you decide which ones to repay first? Here are few tips to help you out:

Always repay secured debts first, as defaulting on these could result in the loss of property.
Try to eliminate small debts before tackling larger debts. This way, when you start repaying the larger debts the smaller ones won’t be able to grow in the background and sneak up on you. Eliminating several smaller debts quickly will also give you a greater sense of progress than eliminating one large debt over a longer time period.
In dire situations, seek the advice of a debt counselor.

Restricted Cash Flow

With all of this repaying going on how can you find the funds to promote progress and increase outreach? After all, you don’t want your business to become stagnant while it operates for no other purpose than to repay its creditors. So what do you do?

Remember you’re already in debt, so being in debt little bit longer isn’t going to hurt as much as missing out on profitable opportunities. Promoting the success of your company should be your highest priority, not devoting all available resources to creditors. With that said, set aside a certain percentage each month for advertising and marketing budget; anything that is left over after that can go towards repayments.

Jonathon Madison is an experienced finance blogger that specializes in small business management. He’s had the privilege of learning from some of the industry’s top debt firms, including TDS (Trust Deed Scotland).

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