Different ways to deal with Small Business Debts
Business Debt is a word that always a haunts an entrepreneur. By hearing the word “debt”, our mind triggers the stress mode. Small businesses always find it difficult when it comes to dealing with business debts. So, debt should be managed in such a way that it doesn’t affect your business routine.
Debts can make a negative impact on your credit rating. By credit rating, we mean that your credit rating can take a dive and you can face a situation wherein you won’t be able to get loans if you really require funds in the future. So, we have come up with different ways which will enable you to deal with your debts more efficiently.
Research Thoroughly before taking any Loan:
Nowadays, getting a loan has become very easy. And different financing houses are ready to give away easy loans to the customers. But there is a catch here, anything which comes in so easily has something hidden in it. So before opting for any loan, calculate your debt coverage ratio and then lay out a plan, which will guide you to know your repayment capacity and thus be making your life easier.
Increasing Income Flow for settling debts:
A sure sort way of paying out the debts is by increasing the flow of income. As cash flow will come in you will be in a state where you can easily clear out your debts. Following are few ways of increasing your income flow:
- Increasing Productivity: No other way can give guaranteed returns as increasing your company’s productivity does. Increasing your employee’s skills with the help of training or by introducing a new technology can fetch you a good return on investment in future. Gunning for new marketing strategy can also help you out. In short term, there will be few expenses, but in the long run, it will surely generate greater returns.
- Renewing terms with vendors: Accounts payable and its proper management can come in handy and can dramatically improve the income flow and thus improving the debt paying capacity of the company. Suppliers can offer payment terms of 30, 45 and in some cases 60 days after the delivery of goods. So you can negotiate an early payment discount which will help you. And lastly, shop from new suppliers periodically for better pricing.
- Inventory Turnover: Inventory management sometimes becomes a herculean task as it has the power of draining your cash reserves as a result of Excess or stagnant inventory. So, adopt “just-in-time” method of buying the inventory for any anticipated demand.
Try to reduce your interest rate on credit card:
A credit card is useful finance tool when used wisely. Now, we all are dealing with credit cards in some way or the other and there is no way to avoid the same. But we can take some measures to ensure that you don’t end up paying high-interest rates on your purchases. For starters try to pay your debts within 30 days to avoid high-interest rate which they levy after the period of 30 days.
If you maintain a good credit score and you are a long-term customer having a track record of paying your debts on time, then you can easily ask for a lower interest rate. Even if there is a reduction of 1-2% in your interest rate, it will save thousands of rupees of yours.
Secure your debt’s future:
The interest rate changes periodically on credit card, mortgages, auto loans. In the case of an increase in interest rate, businesses with high debt and variable loan become most vulnerable. So, whenever the interest is a record low, it’s better to consider locking a fixed rate interest loan. Under a fixed rate interest loan, there is a promise made by a lender to maintain a specific rate of interest for a specified period. This secures you from paying high interest, incase there is a hike.
The concept of consolidating loan is the fastest way of lowering your interest rate and thus it enables you to repay your debts quickly. The simple concept of consolidating is to merge different loans with different rates into one single interest loan. This works well for the businesses with multiple small business loans.
In the end, search for the maximum number of options and consider your financial resources and then commit to a particular option. So, make your decision wisely.
“A hundred wagon loads of thoughts will not pay a single ounce of debt.” -Italian Proverb
- Posted on Aug 22, 2017
- By Dhruv Rudani
- 0 Comments