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Smart Ways To Ease Your Small Business Debt Problems

Mounting debts can be a big issue yet debt is also an important part of achieving growth for most SMEs

28Jun

Lenders have really cracked down on borrowers since 2008 and business debts aren’t always as attractive an option as they used to be. In the light of these less appealing conditions, mounting debts can be a big issue for business at any stage, whether start-ups or those better established. And yet, debt is an important part of achieving growth for most businesses and particularly for small and medium-sized enterprises. In turn, SMEs play an important role in the UK economy – according to the FSB, at the end of 2016, SMEs employed 15.7 million people and accounted for 47% of all private sector turnover in the UK. So, if you’ve got your business into debt and now you’re struggling to get back on level ground, how do you ease the pressure?

Improve your cashflow

If you’re having issues with business cashflow then identify the source of the problems. Are your customers or clients not paying on time? If so, find new ways to incentivize prompt payment. Do your order, fulfilment and production patterns just not work together? If so it might be time to rethink the way the business is structured. Improving your cashflow will make you less reliant on debt and may even create an additional resource that you can use to make larger repayments to clear debts more quickly.

Cut back on unnecessary costs

Is your business really as lean and streamlined as it could possibly be? If struggling to meet business debt repayments is your biggest issue then making cut backs on costs could ease this considerably. Can you find a cheaper supplier? Can you negotiate a better deal? Are you spending on something your business doesn’t really need to pay for to reach its next goal? Trim the fat and free up some extra reserves to make sure that servicing those debts is not a problem.

Sell, don’t hoard

If you have business assets sitting around – such as unused equipment or stock – then focus on selling them, as this can also create the kind of cash that will help you to reduce the pressure of debts. There could be value in just about anything, from old office furniture, to specialized kit.

Consolidate your debts

Bringing all your existing debts together under one single obligation can take a lot of pressure off. This is particularly so if you’re struggling to make repayments because they are awkwardly scheduled or if you’re dealing with different interest rates and repayment amounts. Consolidating those debts means just one payment to think about. If you’re able to find a consolidation loan with a better interest rate than you’re paying on existing debts then you’ll cut the cost of your borrowing too.

Look for investment

Some investors will steer well clear of a business with debt problems. However, others recognize that this could be the only thing standing in the way of great success. Investment comes in many forms, from crowdfunding through to professional investors who will take a slice of ownership in your business in return for putting cash in. Some angel investors will even act as a guarantor so you can take out a guarantor loan without giving up a share of the business. Whether you use money raised from investment to pay off debt or to fund a new part of the business that will generate more revenue is up to you. Either way, that little extra capital help can be the push you need to start relieving debt pressure.

Find a better deal

Are you paying an extortionate amount for your business debts? Sometimes it’s not the debts themselves that are the problem but the fees and interest that come with them. Additional costs and interest can add a lot of extra pressure to business borrowing. If you don’t have the best deal on business debts it’s often worth shopping around until you find one. The business lending market is competitive and there’s now a very wide range of lenders out there so you’re more than likely to be able to find what you need.

Apply for a grant

Although there’s no such thing as a free lunch, when it comes to business grants there are still some great options around. Younger business owners, innovation and tech companies tend to do best when it comes to grants in the current financial climate but there is also money available for the arts and socially responsible businesses too. With the cash from a grant you could inject new energy into your business and relieve the debt pressure that might be slowing you down.

Prioritise your debt repayments

Are you repaying the debt you’re worried about the most, rather than the one with the highest interest rate? If so then you’re not going to relieve that much financial pressure on your business. Start by paying off the debt that costs the most. The less you pay for what you borrow, the lower the overall cost will be, so deal first with those debts that will cost you more to keep.

Speak to your creditors

Whether it’s a bank or a business relationship, if the pressure of business debts is really getting too much try to negotiate with your creditors. Remember that no one really wins if the business goes under – and everyone comes out on top if you become profitable and are able to make repayments and meet obligations. Most creditors will be willing to compromise now for a favourable outcome in the long term.

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