How To Get Out Of Business Debt

Getting out of business debt can feel overwhelming. You may be struggling to make payments and worried about impacts to your credit score or potential legal action. But there are solutions! This article from the financial experts at Delancey Street will walk you through steps to tackle business debt in a strategic way. We’ll cover creating a debt payoff plan, negotiating with creditors, understanding your legal protections, and more. With some diligence and know-how, you can resolve debt and get your business back on track.

Assess Your Debts

First, you need to understand the full scope of what you owe. Make a list of all outstanding business debts, including:

• Loans – bank, SBA, business, personal used for business
• Credit cards – both business and personal if used for business expenses
• Past due bills – utilities, vendors, suppliers, rent, etc.
• Taxes – payroll, sales, etc. if behind on payments

For each debt, note key details like the original amount, interest rate, monthly payment, total owed, and creditor contact information. This helps you get organized and identify priority debts to tackle first.

Evaluate Your Financial Situation

Next, look at your current financial situation and ability to repay debts. Gather data on:

• Income – monthly revenue, profits, owner’s salary, etc.
• Expenses – fixed costs, variable costs, one-time expenses
• Assets – cash, accounts receivable, equipment, property, etc.
• Collateral – assets pledged to secure loans

Project your income and expenses over the next 12 months. This cash flow analysis will help determine how much can be allocated to pay down debts. Use our free cash flow projection template.

Prioritize Your Debts

With your full debt picture and financials in hand, you can now prioritize which obligations to tackle first. We recommend focusing on:

1. Secured debts – Loans or liens tied to business assets as collateral. Defaulting can result in seizure of assets.
2. Taxes – Get current on payroll, sales taxes, etc. to avoid penalties, interest and tax liens.
3. High interest debts – Credit cards and high rate loans. Pay down balances to avoid ballooning interest.

Pay minimums on lower priority debts to stay current as you channel surplus cash to higher priority ones. Our online debt reduction calculator can optimize payoff order.

Debt Type	Total Owed	Monthly Payment	Interest Rate	Priority Level
Bank Loan – equipment collateral	$100,000	$1,500	6%	1
Credit Card – operations expenses	$25,000	$800	15%	3
Landlord – past due rent	$5,000	$500	n/a	2

Negotiate with Creditors

Opening up conversations with creditors shows good faith and they may offer solutions to help you repay debts. Some options to negotiate include:

• Lower interest rates – Reduces total interest paid over time.
• Extended payment terms – More time to pay back without defaulting.
• Modified payment plans – Alternate payment arrangements that work for both parties.
• Settling debt – Lump sum payment for less than total owed as payment in full.

Come prepared with financial documentation. Highlight willingness to pay and potential for mutual benefit. Our guide has negotiation tips.

Consider Debt Consolidation

Debt consolidation combines multiple debts into a single new loan with one payment. This can potentially lower monthly payments, secure lower interest rates, and simplify payoff. Consolidation options include:

• Bank loan – Finance with business assets as collateral.
• SBA loan – Financing guaranteed by the Small Business Administration.
• Balance transfer credit card – Transfer balances to a new card with a promotional 0% intro APR.

Run the numbers to see if consolidation makes sense for your situation. It works best if you can secure a lower rate and affordable payment on the new loan.

Understand Legal Protections

If debts become severely delinquent, creditors may engage in collection activities or legal action. Know your rights and protections under state and federal law.

• The Fair Debt Collections Practices Act limits how collectors contact you and prohibits harassment.
• State laws provide options like wage garnishment protections and statutes of limitations on debt lawsuits.
• Bankruptcy stops collections and can discharge some business debts, but has negative credit impacts.

Consult a business attorney if you receive legal notices from creditors to understand your options.

Make a Debt Payoff Plan

With your financials analyzed and priorities set, it’s time to make a detailed debt payoff plan. This roadmap will guide your efforts to become debt-free. Include:

• Total payoff goal amount
• Timeframe for paying all debts
• Amount budgeted monthly for debt payments
• Order for paying off specific accounts
• Tactics like balance transfers, consolidation, etc.
• Benchmarks and timelines for negotiations

Build in some wiggle room for unexpected expenses. Monitor progress regularly and adjust as needed. Celebrate milestones along the way!

Change Habits that Led to Debt

As the saying goes, “Old habits die hard.” While implementing your debt payoff plan, also work to change bad money management habits that contributed to debt in the first place, like:

• Lack of budgeting
• Poor recordkeeping and cash flow controls
• Using credit to cover cash flow gaps
• Excess spending and poor cost controls
• Not planning for tax obligations

Better financial discipline improves your bottom line and ability to pay off debt. Our article on improving small business cash flow has more tips.

Bring in Professional Help

You don’t have to tackle business debt alone. Consult qualified professionals who can help develop and execute your debt repayment plan. Sources of assistance include:

• Accountants – Provide guidance on budgeting, cash flow, reducing expenses, and managing tax liabilities.
• Business attorneys – Help negotiate with creditors and navigate legal issues.
• Financial advisors – Create debt management plans and repair credit.

The investment can facilitate faster debt reduction and relief from the stress. Reach out for support.

Stay Positive!

Business debt can be demoralizing, but try to keep an upbeat attitude. With commitment to your repayment plan, proactive negotiations, and changed money habits, you can eliminate debts. We’re rooting for you! Contact us if we can help with developing debt solutions tailored to your situation.