Business debt is a great tool for small business owners.
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Business debt lets them manage cash flow better and invest in things that will help grow and expand their businesses.
But business debt is a double-edged sword. Getting overwhelmed with debt can be a fast track to business bankruptcy.
The key to handling business debt well is to take on the right amount of debt and to be able to adapt to changing market conditions.
To manage debt well, you have to control the debt and not visa versa. Here are a few things to do now to make sure that business debt won't be your undoing.
Assess Your Need for Business Debt
It's critical to do cash flow forecasts regularly and see if you will have any shortfalls that will lead to significant financial problems. If you see negative cash flows around the corner, you may need a business line of credit to make ends meet.
Line Up The Credit You Need
Once you've determined that you need a line of credit, make sure that you have one. Banks are cancelling lines of credit or lower credit lines. New lines of credit are tough to get in the current economic environment.
The key, therefore, is to start looking for business debt sources long before you are in a crisis.
If you are struggling with business debt, one financing source you should investigate is the new SBA America's Recovery Capital (ARC) lending program. This small business lending initiative was authorized in a recent economic stimulus bill. Businesses can apply for an ARC loan worth up to $35,000 to cover existing debt. To qualify, the business must have been profitable in one of the past two years, and have been adversely impacted by the recession.
If it looks like you will not get access to business credit, you should start planning for a Plan B, in which you do not have the necessary business debt available to you. This might mean that you have to delay inventory purchases, cancel a marketing campaign, or even let go of some employees.
Cut Business Expenses
The burden of business debt can be alleviated by cutting expenses. That can free up funds to pay off business credit card debts, for example. To be sure, it's a juggling act. You need to cut fat, not bone. But part of managing debt is minimizing debt, and the best way to rid yourself of a reliance on debt is to downsize expenses.
Drive Up Topline Revenues
Even better than cutting expenses, increasing revenues is a great way to manage debt. Get out there and sell a little harder, instead of fixating on the debt and thinking "Woe is me." With more cash coming in, you can get out from under the debt and get back to the basics of growing your business.
Negotiate Your Debt Down or Change the Payment Terms
Everything in life is negotiable, and that includes business debt. Take a look at your business debt and see if you can get a creditor to reduce your debt or at least make the payment plan a little more doable. Remember that you have leverage in these negotiations. The bank and other creditors would much rather that you pay them less money than lose it all if you should have to declare bankruptcy.
Don't Go It Alone
If business debt is hurting you bad these days, don't keep it to yourself. Talk to vendors, creditors and employees and let them know what's going on. Everybody is motivated to see you make it through this tough economy, so you'll get plenty of assistance in managing your business debts.
With hard work and perseverance, you can get on top of business debt and live to do business in a better economy, which we hope is just around the corner.