Managing Debt as a Small Business Owner — And an Easy Way to Consolidate it All

When you own a small business, it can be easy to let your debt get out of hand. Purchasing inventory, paying your employees, and stocking your office or facility with the necessary supplies can all get costly — and when cash flow is irregular, you’re often forced to put those charges on high-interest credit cards that just keep growing in balance.

Soon enough, you’re in over your head, and not only can you not afford your business expenses, but you can’t afford your minimum balances either — and your credit takes a hit.

6 Ways to Manage Small Business Debt

It’s a familiar cycle that all too many small business owners have found themselves in, particularly as costs of goods, labor, and services have grown in recent years.

Have you found yourself in a similar financial hole, unable to dig back out and get back in the black? Here are some tips that can help.

1. Know what debt is costing you the most. If you’ve got debt spread across several cards and loans, sit down and take stock of each one. What are the interest rates on them? The balances? Which one is costing you the most the longer you leave it unpaid? Once you know these details, you can prioritize which debts to pay down first. Paying down higher interest balances will help you save cash, which you can then put toward your other accounts and debts.
2. Find areas to cut costs. Even a small amount of savings each month can help you put a big dent in your debts. Take a look at your books for the last year and see where you spent your money. Are there any areas that look disproportionate? Any opportunities to cut back, even slightly? Maybe it’s stocking the company fridge with non-name brand sodas and snacks, rather than Coca-Colas and Doritos, or maybe it’s finding a new phone, electricity or internet plan. You may even be able to sell off old equipment, electronics, or tools you’re no longer using.
3. Consider raising prices. Small, incremental increases in pricing can help you devote more to your debts as well. If you sell products, consider a 50-cent or dollar hike. If you’re service based, you could add $25, $50 or even $100, depending on what you sell and the local demand for it. Another idea to make some extra cash? Consider renting out extra space in your building or office if you have it. The extra monthly income could help significantly.
4. Shorten payment terms. Do you give customers or partners 2 months to pay their invoices? Have you been hesitant to enforce deadlines and due dates? If you’re racking up debt because cash flow is low, being a stickler on those payment terms is crucial. If you’re not enforcing existing ones, start doing it. If you have long ones, consider shortening them and requiring payment within 10 days to 2 weeks. Having more cash flow will keep you from needing your credit cards as much.
5. Think about diversifying. Is there another product or service you could offer that would complement your current portfolio? If you’re a home inspector, for example, maybe you could also offer pest inspections as well? In the same vein, a massage therapist could also offer lotions, candles, and other relaxing products. Think of things that you could upsell to your existing clientele that they might need or want. It’s a great way to make more cash without needing additional customers or marketing.
6. Partner up with another business. If you have the bandwidth to take on new customers, then consider finding another local business to partner up with. Ideally, it should be one in the same industry as you — and one with a similar client base. A good example would be a hair salon partnering with nail salon. Both often have clients in need of sprucing up before special occasions; therefore they have ample opportunity to refer business to the other company. It’s a win-win for both parties.

As you can see, tackling your debt as a small business owner takes a good mix of creativity, planning, and frugality — but it can be done.

The Best Option? A Cash-out Refinance

A cash-out refinance can be another great way to consolidate debts and pay off higher-interest credit cards. Unfortunately, if you have a high loan balance — not to mention a less than perfect credit score and non-W2 income — finding a lender to give you one is another story.

That’s why we launched Beyond by Embrace. Designed just for non-traditional earners and those with lower credit scores (or past bankruptcies), Beyond makes it simple and easy to refinance your mortgage and consolidate your debts. Contact an Embrace loan officer today to learn more.