Business Debt Relief: How to Handle Small Business Debt

It’s common for small businesses to suffer from too much debt. Being unable to meet your debt obligations can ruin your credit or even put you out of business. However, there are a number of business debt solutions. We’ve put together strategies you can consider if you need to strengthen your business or shut it down.

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If you want to keep the business open

If you want to continue running your business, defaulting on your debts is not an option. Defaulting can cause your credit scores to plummet, signaling to creditors and lenders that you haven’t kept your payment promises. You’ll be identified as a risky borrower and applications for low-cost credit may be denied. Here are some strategies you can use to help relieve your debt burden.

Understand your financial situation

The first step to getting a handle on your business debt is to understand where you stand so you can eliminate stress and move forward. Ask yourself these questions to help you asses your financial situation:

  • How are your profits?
  • How much are you spending on inventory?
  • How much are you making on products sold?
  • How much money is left over?
  • What’s your debt situation?
  • Are your products selling?
  • Do you have an emergency fund?

If you’re having difficulty coming up with solid numbers, it’s a good idea to work with your bookkeeper, accountant, or other financial professional with small business experience.

Cut costs

Once you have an understanding of what you owe, review your expenses to determine where you can cut back. This strategy can be difficult for a small business with a limited budget. However, there are tons of little expenses that add up. Reducing these obligations can be painless. Keep in mind that every penny saved is money that you can apply to outstanding debts.

Our article, Don’t Forget These Sneaky Expenses When Starting Your Business, has information about how little things like utilities, credit card processing, and insurance can add up. You’ll get advice about how and where to cut.

Connect more with consumers

If you’re a service provider, your customers may not pay on time, leaving you short on cash flow. Reach out to customers with outstanding invoices and request payment in a professional and friendly manner. If late payments are consistently affecting your business, you might want to implement late fees.

Negotiate with suppliers

Negotiating costs and terms with your suppliers can help decrease your expenses, increasing profits. For advice about how and when to approach your suppliers, read 7 Tips for Negotiating the Best Deal With Your Suppliers from the QuickBooks resource center.

Contact creditors

Going radio silent when you’re not paying your debts is a bad idea. Reach out to creditors and lenders to discuss a lower interest rate or an extended payment period. If you’re having trouble with a bank loan, you may be able to negotiate more favorable terms or rates. This strategy will work best if you haven’t made late payments and your business financials are solid. For credit cards, you can consolidate and transfer balances to lower interest cards. If you’re going that route, keep an eye on the date that a special offer ends so you’re not surprised by an interest rate spike.

Refinance loans

Refinancing is lowering the interest rates-and often the payments-of the loans you’re currently paying. Consolidating can just move your debt around, not really giving you relief. On the other hand, refinancing can lower your rates, increase your terms, and lower your monthly obligations.


SmartBiz customer Milton Martinez used this strategy by taking out a low-cost SBA loan. He says, “By getting rid of two small loans I’m saving $15,000 – $18,000 dollars. That’s money I can put back into growing my business or into savings.”

The SBA loan Martinez acquired is a government-guaranteed small business loan that has a long term and a low interest rate. A low-cost SBA loan can be used to refinance merchant cash advances, short-term business loans, high-interest business loans, daily or weekly payment loans, or business credit cards. Additional funds may be used for working capital to help your business expand.

Ask yourself these questions before jumping into a new loan.

  • Are the loan terms competitive? Research alternative lenders, banks, and credit unions to find the lowest interest rates with the best terms.
  • How much interest is left to pay on your current loan? If you’re getting close to the end of an amortized loan, (where interest is paid early, principal later) refinancing may not be the best answer. Towards the end of a loan, the interest rate may be high but most dollars are going towards the loan’s principal.
  • What are the costs of getting a new loan? Fees from a new loan can potentially wipe out any savings you’ll get from refinancing. Larger loans cost more. If you’re using real estate as collateral, factor in an appraisal, which can be costly.

Keep in mind that some debt refinancing offers that sound too good to be true, typically are. Before you refinance one or more loans, research the lenders background and look for reviews from actual customers.

If you want to allow the business to fail

If your business has unmanageable debts and the strategies above aren’t working, it may be time to close your business. If you just walk away, you could be sued by creditors and your personal assets might be at risk depending on your business structure. Here are options if you’re ready to bow out.

Sell the business

If your business has more debts than assets, it might be hard to find a buyer. The NFIB has an article to get your organized if you’re going this route: How to Sell a Small Business in 7 Steps.

Liquidate assets

This strategy is turning your business assets-like inventory, office equipment, and even furniture- into cash to pay your creditors. Steps to take are outlined by an attorney on the NOLA blog here: How to Liquidate a Closing Business's Assets.

Announce bankruptcy

As a last resort, you can declare a business bankruptcy. This will turn over your business to a bankruptcy trustee. The trustee will sell any assets, pursue outstanding accounts receivable, pay any taxes owed, and distribute remaining funds to creditors. You’ll make a clean break from your business but your personal credit will be impacted for seven years. Bankruptcy isn’t a move to be taken lightly. You should work with a legal professional throughout the process.