There’s nothing wrong with being in debt if you’re using the borrowed money to finance a business. As long as you make timely payments, you can keep yourself from going underwater and being hit with a civil lawsuit from creditors and lenders. However, not all businesses do well in managing their debt, often leading to bankruptcy filings and a long road to financial recovery. This is often the case for businesses that take on debt from multiple providers.
There’s a good chance your business could fail on account of the massive money you’ve borrowed to start it. If anything, the capital needed to get things going is usually financed by debt. Not being able to pay on time would also mean putting your financial future on the brink of collapse. The decisions you make when managing your debt will determine whether your business will stay for the long haul.
Understanding Your Business’s Situation
The first thing you will have to do is to have a thorough understanding of your current cash flow and liabilities. You may have borrowed from different lenders and your business’s earnings could hardly catch up with your monthly repayments. Dealing with this requires coming up with a strategy that benefits your position.
Consider the challenges your business is facing and the amount of money that flows out of it to cover operational expenses such as wages, rent, and equipment maintenance. From there, you can decide whether to downsize your operations or come up with new marketing campaigns to draw in more clients. It matters to prioritize what you owe so you can avoid piling up interest and penalties that may eat into your business’s bottom line.
Coming Up with a Repayment Strategy
If your business struggles with operational expenses, but still needs to make timely repayments, you can come up with a clever strategy that involves allocating a set percentage of your monthly earnings for debt repayments each month.
In case that doesn’t help, you can check with lenders if they would agree to revise your loan terms so you can lessen your monthly repayment amount in exchange for a longer duration. This would mean extending the time it takes to repay the entire loan but at least you can afford to keep the lights on and avoid reducing your staff.
Opting for Debt Consolidation
Another helpful strategy is to try to reduce the burden of debt on your business is to roll all your dues into a single repayment. If you owe money to multiple lenders, you can take out a larger loan to pay them off and avoid losing money to interest fees.
Other than that, this consolidation simplifies your debt management strategy and reduces the interest you owe. Although the single payment you make is hefty and the term is longer, the amount is more manageable compared to tracking multiple loans all at once. This allows for a simpler way to monitor your business’s cash flow and make adjustments to operational spending.
Negotiating with Your Creditors
In case the amount you owe is already too much for your business and you have no other debt relief options on hand, you can always reach out to your creditors and check if they could agree to a repayment plan that’s more in tune with your financial situation than a simple revision of your loan terms. If this is the route you’re opting for, make sure to review your debt situation first and come up with a compelling reason for a major debt settlement proposal.
You have a right to do this as a borrower, but keep in mind that your creditors also have the right to refuse repayment offers that do not align with their best interests. They may even proceed with filing a civil lawsuit to recollect the amount plus penalties. Consider getting legal advice if you want to make the most of the debt negotiation process. What’s more, reach out to LawFirm.com in case there’s no other escape route for your business than a bankruptcy filing.
Endnote
You can never overlook your responsibility to pay off lenders and creditors, but this shouldn’t come at the cost of your business’s survival. Consider these debt management tips to keep your business alive and well.
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