The COVID crisis has lessened but managing lockdowns, mandates, safety, and business operations has been overwhelming for many. Although the light at the end of the tunnel is approaching, small business cash flow has taken a hit in all industries.
In 2020, 79% of small employer firms (up to 499 employees) reported having outstanding debt, up from 71% in 2019, according to a February 2021 report by the Federal Reserve Banks. Of the firms that applied for financing, 58% said they did so to cover operating expenses like rent and payroll, compared with 43% in 2019.
Rebuilding and strengthening your business is an absolute possibility. Paying down debt can be a great start to help your business get back on track. Here are a few ideas to help you launch a financial plan moving forward in this new normal.
Hopefully, you haven’t been practicing “shoebox” accounting, tossing important papers into a drawer. It’s time to pull up the books and take a detailed account of your debts, interest rates, repayment terms, late fees, etc. Take a full accounting of what you owe, including interest rates and repayment terms for any loans or credit card debt you've accumulated.
If you need, work with a financial professional to set up an effective timeline to pay off your debts. You should be able to determine which ones to tackle first to start chipping away at your debt. and start picking them off one by one. If you're juggling multiple loans or credit cards, funnel any extra payments to the debt with the highest interest rate.
The first steps of getting organized include:
If you need to hire an accountant, check out our article with tips to help: How to Hire an Accountant for Small Business.
Lots of business owners took advantage of the SBA’s PPP program. While this might be entered in your books as a debt, the loans are fully forgivable if certain requirements are met. Request the forgiveness documents from the bank that funded your PPP loan and make sure you meet the deadline to submit. Here’s more information: Paycheck Protection Program (PPP) Loan Forgiveness: Learn More About How it Works.
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 Business Expenses, 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.
Depending on your industry, there are tried and true ways you can increase your business revenue, especially post-pandemic. Consumers are ready to shop!
In short, business debt consolidation is the combining of several forms of debt into one new loan with a single, streamlined monthly repayment. This debt could consist of outstanding small business loans, such as lines of credit and bank term loans. Consolidating business debt can make repaying business debt more manageable, more affordable, and easier. While consolidation refers to the merging of multiple loans into a single new loan, refinancing only requires a single loan that can be paid off and replaced with another loan at a lower interest rate. All types of small businesses apply for funding to refinance existing debt. It’s important that you get the lowest possible APR when combining business debt into one payment.
Consider a low-cost SBA 7(a) loan with the most competitive rates on the market, a 10-year term, no prepayment penalty, and low payments.
SmartBiz Loans Customer Milton Martinez explains how debt consolidation with an SBA loan was the right strategy for his business. “By getting rid of two small loans, I’m saving $15,000 – $18,000. That’s money I can put back into growing my business or into savings.”
You don’t have to tackle financial issues alone. There are lots of small business resources designed for entrepreneurs. Look into the local Small Business Development Center or Community Development Corporation. SCORE can connect you with a successful business owner for free mentoring.
Bookmark the SmartBiz Small Business Blog for thorough and timely articles about business operations. You’ll learn about credit, lending, marketing, sales, and more.