Getting Business Debt Under Control
One of the many reasons business owners are unable to grow their business is because they have too much existing debt. This can mean they are unable to borrow the funds they need to expand. Whether expansion involves new equipment, hiring new employees, or upgrading facilities, strong cash flow, and lower debt makes a difference.
Evaluate Your Current Debt
The first step in getting your debt under control is to understand the type, maturity, and cost of your current debt. Business owners who have resorted to using credit cards as an additional credit source could be paying in excess of 20 percent in interest. Create a table of the balance, interest rates, and monthly payments so you know exactly what you are facing.
Create a Plan
One of the first things you should consider is speaking with your creditors. Credit card companies, banks, and vendors are often happy to discuss terms with you before you start facing difficulty paying your debts. Here are some common tips:
- Credit card and bank loans — consider asking for interest rate reductions. This may be effective if you have a good payment history, and if you have offers from other companies for your business. Additional offers can be used as a bargaining tool.
- Talk to your vendors — if you have good relationship with your vendors, ask about changing payment terms. If you are currently paying invoices on a Net-15 basis, try to get a Net-30 agreement. This may give you more buying power, allow you to generate extra business, and give you some breathing room.
- Discuss all aspects of financing — bank loans, lines of credit, and other similar loans often have a personal guarantee attached. You may be able to negotiate this out, change the amortization for a loan to reduce monthly payments, eliminate prepayment clauses, or change due dates to be more in line with your cash flow.
- Consolidation of debt — if you have multiple lines of credit, or outstanding loans, look into the possibility of rolling the balances all into one loan. This could mean one monthly payment instead of several, and you may also be able to get a reduction in interest rates, or better terms.
Saving With Smart, Timely Payments
Getting your debt under control involves more than negotiating with your creditors. Another step you can take is managing how you make your monthly payments. First, payments should always be on time; this not only helps preserve your business credit rating, but it also helps you avoid costly late fees which merely add to your debt. Paying ahead when possible can also save you interest over the term of a loan, just be careful of prepayment clauses you have been unable to eliminate.
Boosting Business For Added Cash Flow
While it may seem counter-intuitive to work towards new business while attempting to get your debt load under control, the fact is more cash flow allows you to pay your debt in a more timely manner, and begin operating your business on a cash basis. This may require some creative financing solutions; for example, if you need immediate cash to invest in materials to deliver a large order, you may think you have no options but to borrow money again which seems counterintuitive to what you are trying to accomplish. There are some options however including:
- Receivables financing — if you are like most small and medium-sized business owners, you are probably owed money from customers. Rather than wait the full 30 or 60 days until those invoices are due, consider selling some, or all those receivables for immediate cash. While you will get less than face value, this could provide an immediate influx of cash.
- Purchase order financing — rather than use existing invoices, you may also opt to use purchase order refinancing. This method of financing allows you to get the much-needed cash to fulfill big orders by using the order to borrow money. This allows you to purchase the materials you need to fulfill the order without incurring additional debt.
Think About Your Business Model
If you are maintaining a large inventory for future orders, consider talking to your vendors about optional ways of doing business. Perhaps you can purchase materials as needed, or you can return excess product at the end of a job; remember, inventory on hand may be good, but if it is tying up your cash flow, it impedes your business growth.
Nearly all businesses have some debt, however, debt can cripple a business to the point of leaving you with no options. Capstone Capital Group offers a range of financing options for small and medium-size business owners. Contact us today, call us at (212) 755-3636 and speak with one of our highly skilled representatives and let us see how we can help your business get your debt under control.