Chat with us, powered by LiveChat

How Debt Nearly Bankrupted My Successful Business

How Debt Nearly Bankrupted My Successful Business

When I started my business over 10 years ago, I never imagined that taking on debt could nearly cause me to lose everything. At first, the business was thriving – we had strong sales growth year after year and I was fulfilling my dream of being an entrepreneur. But underneath the surface, the debt I had accumulated to grow the business was becoming a ticking time bomb.

The Early Days – Rapid Growth Fueled by Debt

In the early days, I took out loans and lines of credit to invest in inventory, equipment, and even a small office space. It seemed like a good idea – the more inventory I had, the more sales I could make. And the better equipment allowed me to work more efficiently.

Business was booming. Year over year, I was seeing 20-30% sales growth. I was so focused on rapid growth that I didn’t even think twice about taking on more debt. It was easy to get approved for new credit cards and small business loans. I just saw it as free money to invest in the business.

By year 3, I had over $100k in outstanding debt across various credit cards, equipment financing loans, and a line of credit secured against my house. But I wasn’t worried at all – I had lots of sales and I was still seeing strong growth. I figured I would just slowly pay down the debt over time as the business continued to grow.

The Turning Point – Growth Stalls But Debt Remains

After 5 years in business, I started to see signs of trouble. Sales growth started to slow down. And in year 6, sales actually declined for the first time ever. I wasn’t sure what was going on – was it the economy? More competitors entering the market? Looking back, I think it was a bit of everything.

But either way, the rapid growth I had enjoyed in the early years came to a halt. The problem was, I still had all this debt I had accumulated. All those credit card payments and loan payments were due every month, whether I had growing sales or not.

I had to make some tough decisions. I laid off a few employees and cut back on inventory purchases. I was just trying to reduce expenses to the bare minimum while I figured out how to get sales growing again. But I still couldn’t keep up with the debt payments.

Debt Spirals Out of Control

Within a year, I had fallen several months behind on credit card and loan payments. The debt had ballooned to over $250k between the principal amounts and growing interest. Creditors were calling me daily demanding payment. I was stressed to the absolute limit trying to salvage the business while dealing with this mountain of debt.

Then things went from bad to worse when I got served with lawsuit from one of the creditors. And that wasn’t the only lawsuit – over the next several months, four more creditors filed suits against me to recover the debt I owed.

At this point, I realized I was in serious trouble. The lawsuits were a tipping point where I finally admitted to myself that the debt had spiraled out of control. Paying it down was not really an option anymore considering the business struggles. And now the legal threats were growing.

I met with a small business lawyer to understand my options. He agreed that bankruptcy was likely inevitable if I couldn’t turn sales around quickly or find some way to settle the debts. I was facing the reality that my dream business could be taken from me all because of debts I had taken on years before.

Back from the Brink – A New Focus

Over the next year, it was an absolute grind. I settled two of the lawsuits by arranging long-term payment plans on the debts. I found some breathing room there. For the other suits, I was able to convince the creditors to give me a bit more time to get back on my feet.

And most importantly, I refocused completely on the business itself – how to get sales growing again. I realized all the debt had distracted me from what really mattered – designing and selling great products that customers wanted. I talked to customers, revamped the product line, and slowly but surely, sales started to climb again.

Within two years of nearly losing it all, I was able to pay off two of the smaller debts entirely. And I continued paying down the payment plans I had arranged on the settled lawsuits. Sales grew another 10% the next year. My energy and optimism about the business returned better than ever.

While it took over 5 years in total, I can now say my business has recovered fully. Sales are strong and stable – even better than the early rapid growth years. And I have two debts left to finish paying off, but the payment plans are manageable. I’ll be debt free within the next year.

Lessons Learned – Moderate Debt, But Revenue Matters Most

Looking back, I made mistakes in those early rapid growth years by relying too heavily on debt financing. I thought more inventory and equipment would drive growth, when really I just needed to keep innovating great products. The debt I piled on weighed me down later on when sales slowed.

Moving forward, I realize some debt still makes sense to fuel growth. But it has to be modest, manageable amounts that align to revenue. And the priority has to be great products, happy customers, and ultimately sales and revenue to sustain the business. Debt can be a tool when used properly, but it also nearly killed my business when it got out of control.

Having lived through the near collapse of my business, I’m now much more conservative on debt. I make sure any additional loans or credit aligns directly to realistic revenue growth projections. And I put protections in place to make sure monthly payments on debt are easily managed even if revenue slows for a period.

Ultimately for any business, sales, customers, and revenue have to come first – debt is just a supporting tool. Misusing debt and letting it spiral out of control puts everything at risk, as I learned firsthand. But with the difficult lessons behind me, I feel equipped to continue growing my business in a sustainable way for many years to come.

Let me know if you have any other questions!

Delancey Street is here for you

Our team is available always to help you. Regardless of whether you need advice, or just want to run a scenario by us. We take pride in the fact our team loves working with our clients - and truly cares about their financial and mental wellbeing.

"Super fast, and super courteous, Delancey Street is amazing"
$500,000 MCA Restructured Over 3 Years
"Thanks for helping me in literally 24 hours"
$250,000 SBA Loan Offer in Compromise
"Great choice for business owners who need a trustworthy partner"
$350,000 MCA Restructured Over 2 Years

In The Media

Delancey Street CEO discusses ways to reward employees
Delancey Street CEO discusses the benefits of franchising on Forbes.
Delancey Street CEO discusses management on AMEX.
How Do I Stop Paying An MCA Advance

How Do I Stop Paying An MCA Merchant cash advances…

What Should I Do If OneMain Financial Is Taking Me to Court?

What Should I Do If OneMain Financial Is Taking Me…

How to Wind Down a Small Business With Too Much Debt

  How to Wind Down a Small Business With Too…

Coping With Debt-Related Marriage or Relationship Problems

  Coping With Debt-Related Marriage or Relationship Problems Money issues…

When Starting a Small Business to Pay Off Debt is Risky

When Starting a Small Business to Pay Off Debt is…

Delancey Street simply gets it. You're talking to experts.
Steven Norris
Get Help Today

Ready To Get Started?

If you have questions, feel free to shoot us an email, or fill out our live chat.

Schedule Consultation