Many businesses have taken on debt to manage the impacts of COVID-19. Some business debt can be good, as it helps you expand your business. However, paying down excess debt is a worthy goal because it frees up cash, improves your business’s credit score, and decreases business risks.
Simple Steps to Reduce Your Debt
There are easy steps you can take to start reducing excess debt:
- Create a budget. Know what money you have coming in and where it’s going, and make sure you always budget for loan repayments.
- Have a plan. Focus on one loan at a time and start paying the one with the highest interest.
- Increase your revenue. Work with Premlall Consulting to boost your marketing and advertising efforts and scale your business.
- Decrease expenses. Find expenses to cancel or pause. Subscriptions and professional memberships can often be paused.
- Consolidate debt. Consolidating multiple loans not only saves you fees, but you can also often refinance to a lower interest rate, and your monthly payment will likely be lower. This allows you to put more money toward the principal of your loan.
- Get paid. If you have a group of clients or customers who aren’t paying their bills on time, commit to a specific invoicing schedule. You can easily run invoices with an online invoice maker that allows you to quickly customize an invoice, then send it as a PDF.
Investigate Business Grants
Business grants are designed to help businesses succeed. They’re often available through all levels of government, though there are other organizations that offer grants. Generally, grants can’t be used to pay down loans. However, there are currently grants to help relieve debt caused by COVID-19. Make sure you understand what the grant can be used for, as you may need to pay back money spent incorrectly.
Grants often have specific requirements for eligibility, so finding those aimed at your industry can increase your chances of success. Grant proposals are also tricky to write and need to include business plans, financial statements, and detailed information on how you’ll use the money. Hiring a professional grant writer can help increase your chances of success.
Consider Your Business Structure
Forming a corporation won’t wipe out debts, but it can help protect you if you have trouble paying them. As a sole proprietor, you and your business are essentially the same entity, and you’re liable for any debts the business incurs.
Forming an LLC separates you and the business, which can protect your assets if you default on a loan. An LLC does have other benefits when paying off debt.
There are often tax savings for corporations, which frees up cash for debt reduction. It’s also easier to raise money, and banks are likely to give you a better interest rate. Rules for forming corporations and LLCs can differ, so investigate properly before you decide to go ahead.
Explore Debt Reduction Options
Simple steps such as budgeting and increasing revenue can help you make big strides in paying down debt. Explore all the options, including applying for grants and changing your business structure, to find a solution that’s best for your business.