Managing debt and loans is a crucial aspect for small business owners seeking financial stability and growth. From reading loan documents carefully to leveraging credit card rewards wisely, we’ve gathered ten valuable insights from founders, CEOs, and financial experts. These seasoned professionals share their top strategies to help you navigate the complex world of business finance.
- Read Loan Documents Carefully
- Profit Focus for Financial Flexibility
- Save Early for Unexpected Expenses
- Utilize Cash Forecasts for Loan Repayment
- Consult Experts for Debt Management
- Negotiate Flexible Repayment Terms
- Maintain Proactive Financial Management
- Prioritize Debts and Cut Costs
- Maintain Detailed Budget and Cash-Flow
- Leverage Credit Card Rewards Wisely
Read Loan Documents Carefully
As both a business owner and a debt-protection lawyer, I have tons of advice. But one very important tip I will share is this: Be very careful. Read your loan documents very thoroughly. Don’t take out loans you can’t make the payments on.
I regularly see business owners who think they got a loan, but they were unknowingly sold Accounts Receivables! These are not loan agreements; they are buy/sell agreements. This is done by “finance institutions” (i.e., “lenders”) to get around laws that regulate loans. For example, they will “buy” $65,000 of your future receivables for a purchase price of $50,000, and then charge all sorts of other fees and very high interest.
Then, if you don’t pay them, they charge you with stealing “their” assets! They will also assert liens and contact your customers to pay them and not you. Read everything very carefully before signing an agreement so you are confident about what you are agreeing to.
Greg Fitzgerald
Founding Partner, Fitzgerald & Campbell
Profit Focus for Financial Flexibility
We started our business being profitable from day one; having a service or product that generates revenue immediately can be the backbone of your finances. Then, when you do take on debt, you have something to lean on to pay that down. If your eye is on profit no matter what, you’ll have a lot more flexibility.
Christopher Falvey
Co-Founder, Unique NOLA Tours
Save Early for Unexpected Expenses
My best piece of advice for business owners who want to manage their debt and loans is to start saving as soon as you can. Even when I was paying back my first set of loans, I found a way to put a couple of hundred dollars into savings each month. It’s challenging but totally possible.
My reason for this decision boils down to the fact that unexpected expenses are not so much an “if” as they are a “when.” Instead of scrambling to find the money when a new debt comes in, I simply turn to my savings and reduce the impact on my business and stress level.
John Turner
Founder, SeedProd
Utilize Cash Forecasts for Loan Repayment
We hired a fractional CFO who has created a tool that outlines our cash forecast. The cash forecast looks at all the booked revenue and the sales pipeline (including likelihood to close) and creates a fairly realistic outlook for the business. From there, we can decide if it is time to hire, time to lay off, time to bring in contractors, or okay to dip into the line of credit to cover operating expenses.
We have only just applied for our first business loan (11 years bootstrapped!). The plan with that loan is to consider the loan repayments as a monthly expense, and work that into the budget and forecast so the repayment is always being prioritized.
Dani Vachon
CEO, The Beacon Design Collective Inc.
Consult Experts for Debt Management
Seeking professional advice is advisable for effective debt management in small businesses. Consulting with a financial advisor or accountant specializing in small-business finance can help develop a strategic debt management plan. They can offer personalized insights and recommendations tailored to the business’s unique financial circumstances.
Exploring alternative financing options, such as invoice financing or peer-to-peer lending, may provide more favorable terms compared to traditional bank loans. Expert guidance empowers business owners to make informed decisions and navigate debt management with confidence.
Gillian Dewar
Chief Financial Officer, Crediful
Negotiate Flexible Repayment Terms
I’ve found that negotiating favorable terms has been crucial. Early on, I faced a daunting loan for a new yacht-insurance line. Initially, the repayment terms seemed rigid, but I took the initiative to sit down with our lender.
By presenting our business plan and growth projections, I successfully negotiated a more flexible repayment schedule. This experience taught me the importance of open communication and negotiation.
It not only eased our financial burden but also built a stronger relationship with our lender. My advice to other business owners is to never shy away from negotiating. More often than not, there’s room for terms that can benefit both parties.
Samuel Greenes
Founder, BLUE Insurance of New Jersey
Maintain Proactive Financial Management
One important tip I’ve learned is to keep your finances tidy and proactive. This includes keeping a tight watch on cash flow, creating realistic budgets, and negotiating loan terms that are beneficial to your company. It’s all about planning ahead of time and staying within your means.
Personal experience has taught me that communication is essential, particularly when working with lenders. Please do not hesitate to contact us if you discover any difficulties or need to renegotiate terms. Many lenders will work with you if they understand your situation and realize that you are devoted to fulfilling your responsibilities.
Overall, I advocate approaching debt and loans with a cool head and a clear plan. Be careful of your financial obligations while also pursuing opportunities for growth. With careful management and sound decision-making, you can navigate this area of finance while keeping your firm on track.
Matt Little
Director & Entrepreneur, Festoon House
Prioritize Debts and Cut Costs
In my opinion, there is more than one strategy that you should follow as a small business owner. Understanding your business’s financial condition is the first step to managing business debts and loans. You need to list your debts first. You must consider the principal amount, interest rate, payment arrangements, and due dates. Put this information together and prioritize payments accordingly. You should consider tax-deductible interest on certain loans, as they also affect your repayment priorities.
These debts may include:
– Bank loans or overdrafts
– Business credit card debts
– Liabilities on working employees like employee benefits, wages, pensions, or post-retirement benefits
– Suppliers’ bills
– Lease contracts
– Income Tax and business taxes
If your business deals with debt payments and cash flow, you must either raise income or reduce costs, whichever is easier. You should consider your six-month business expenses, such as rent, utilities, subscriptions, and software fees. Total the costs and multiply by 10%. Follow a specific plan and cut corporate expenses by that percentage. The amount you get can be used toward paying off higher debts.
Your business needs funds to grow, and unsecured loans are the most convenient source of funds. But you must borrow properly and consider the ROI to avoid needless business debt. Before taking out a loan or line of credit, make sure it will be used for a defined purpose with a clear ROI. You should create a business emergency fund and use it for equipment repairs, economic crises, and cash flow problems. By setting up an emergency fund, your business can avoid debt for unexpected needs. So, you need to build a reserve for three to six months of business operating expenditures.
If your business is struggling to pay its debts, talk to your creditors. Many creditors will help create a repayment plan with lower interest rates, longer payment terms, or entirely forgiving the debt. Be honest about your financial issues and commit to solving them. You may use two unique DIY methods to pay off debts:
The debt avalanche technique involves paying more on the highest-interest debt balances first and less on all others. This method helps you save on overall interest payments, but it may take longer to pay off the total balances.
The second option is the debt snowball method. It involves paying off the smallest debt balances first. This way, you can pay off debts faster.
Loretta Kilday
Debtcc Spokesperson, Debt Consolidation Care
Maintain Detailed Budget and Cash-Flow
One effective strategy for managing debt and loans in your small business is to maintain a detailed budget and cash-flow forecast. By tracking income and expenses closely, you can anticipate cash-flow gaps and ensure timely loan payments.
Explore various financing options and negotiate terms that align with your business goals. Seek professional advice if needed. With proactive financial planning, you can effectively manage debt while driving business growth.
Jenny Moss
Director of Marketing, FormFree
Leverage Credit Card Rewards Wisely
I strive to maintain a debt-free stance and diligently pay off my credit card balances each month to manage my company’s finances. By using a rewards credit card for everyday business expenses, I earn points, miles, or cash back on purchases my business already makes. This approach not only optimizes cash flow through the card’s grace period but also transforms regular operational expenses into an opportunity to earn rewards. Using a credit card that is in alignment with your most common business expenses—travel, design software, office supplies, or telecommunications—can enhance the value you get back from these expenses.
Additionally, this disciplined use of credit can improve your business’s credit rating over time, potentially facilitating access to credit under more favorable terms in the future. This strategy leverages financial discipline, turning a routine financial activity into a source of savings and rewards, thus contributing to your business’s overall economic efficiency and growth potential.
Kristin Kimberly Marquet
Founder and Creative Director, Marquet Media
