5 Ways to Manage and Pay Off Small Business Debt

As a small business owner, you have a lot to manage—business goals, vendors, marketing strategies and maybe even some employees. And that’s far from an extensive list. Add debt to the mix and you suddenly have one more big thing to juggle.

Debt is sometimes necessary to build business credit, get your small business off the ground or to keep it running, but it can create unnecessary pressure and headaches, too. Over time, debt can stand in the way of your business objectives and become unsustainable.

If you’re struggling with business debt, here are five tips to help you turn things around.

1. Categorize and Organize the Debts

First, map out each debt you owe. This can be done in a simple spreadsheet or even with pen and paper, but the important thing is to be specific. You want to list every individual debt and include detailed information, including:

• Total remaining balance
• Monthly payment amount
• Interest rate
• Due date
• Creditor
• Method of payment (automatic draft, check, etc.)
• Purpose of the debt
• Type of credit (loan, personal credit card, business credit card, etc.)

With this information in one place, it will be easy for you to see exactly what you owe and when, and to make a better game plan for each type of debt and for the debt over all. 

2. Identify the Issue

Now that you have the details laid out, carefully consider the source of the problem. Look at each account on your list with a critical eye and ask:

• What led to this debt?
• Are the expenses that led to the debt still essential moving forward?
• Are those expenses likely to arise again?
• How can I reduce or prevent those costs?

Defining the cause of the debt will help you determine if it’s likely to become more severe and look for ways to avoid accruing more debt where possible.

3. Reduce Spending and Increase Income

While business and personal debt are different, there are some concepts that apply to both. For example, the two major contributors to both types of debt are spending and income.

Minimizing your business expenses will free up extra funds to put toward debt and help you avoid taking on new debt. Increasing your revenue will also provide more funds for debt payment and is often a good indicator that your business is growing.

In the business context, the following strategies can help you change your expenses and income:

• Cut out the fluff. Doughnuts for the office, special lunches, extra office space, networking conferences—these expenses can all add value to your business, but none of them are mission critical. If you’re in a pinch, consider cutting nearly all nonessential expenses and reintroducing them when you’re back on track.
• Renegotiate prices or contracts with third-party vendors. Be careful not to jeopardize good business relationships, but think about where you may be overpaying or if you haven’t shopped around for better rates in a while.
• Adjust your prices. Depending on your business model and customer base, you may be able to earn more by changing your pricing structure, whether that’s by increasing your prices, decreasing them to improve sales volume or otherwise.
• Follow the demand. Where is your best opportunity to make some cash? Maybe your customer base is demanding more of what you offer, there’s an opportunity for a new product or service or your customers would like extended business hours. Do some research and number crunching to calculate the costs and benefits of these changes.
• Improve your invoicing. If you’re often lagging when it comes to invoicing clients, work to send invoices more frequently so you can minimize cash flow issues that often lead to debt. Depending on your agreement with clients, you might also consider shortening payment terms to 14 days, especially if you use electronic invoices and payments.

4.Talk to Creditors

If you anticipate you’re going to fall behind on debt payments, or even if you’re already behind, reach out to your creditors immediately. Creditors are often willing to work with borrowers who are in a bind, especially when those borrowers communicate early.

Your creditors may be willing to lower your interest rates, make temporary modifications to your repayment requirements or even help you consolidate accounts into a new debt with better terms. Just make sure you understand how debt consolidation works first.

5. Consider Professional Support

If you’ve tried the above strategies and aren’t making enough progress, consider working with a professional to improve your debt situation. There are firms that specialize in developing business debt strategies and helping you avoid bankruptcy. Just be careful to find an advisor you can trust. Here are some red flags to avoid when looking for support:

• High fees
• Promises that sound too good to be true
• Debt settlement agencies
• Unclear agreements or confusing terms
• Refusal to put terms in writing
• Bad customer reviews

You might be able to find trustworthy, free or low-cost support through the Small Business Association (SBA) or your state or local government.

As you decide where to go for help, keep your personal credit and debt in mind, too. If you have personal debt that you took on for the business, you may have different options for getting it under control. For example, you can reach out to an NFCC-certified credit counselor to see if you qualify for a debt management plan (DMP) and get strategies for managing both business and personal debt.