Do you have trouble sleeping at night because of your business debt and thinking of to Deal with Debt? If that’s the case, you’re not alone. Gallup, a research-based worldwide performance management consulting firm, recently conducted a survey and discovered that 49 percent of small business owners find managing their existing debt extremely difficult. Deal with Debt management is, without a doubt, one of the most difficult difficulties that a small business owner may confront.
When things go very bad and there’s no way out, many failing firms have declared bankruptcy in the past. However, new restrictions have made declaring bankruptcy to get out from under debt mountains more difficult. Furthermore, bankruptcy is a difficult path to choose because it comes at a great cost. A bankruptcy filing typically costs tens of thousands of dollars in court and legal expenses. Worse, your credit ratings, as well as your company’s reputation, may suffer significant damage, making it nearly impossible to restore commercial stability.
Fortunately, there are ways to avoid a financial tragedy of this magnitude. Here are a few pointers to help you take control of your debt and to Deal with Debt before it takes control of you.
1. Before taking out a loan, do your study to Deal with Debt
Before you apply for a loan, you should assess your debt coverage ratio. This will influence how easy it will be for you to repay the loan. Lenders utilise debt coverage ratio as one of the criteria for determining the amount, interest rate, and terms of a loan.
Divide net operating income by the debt’s interest and principal payments is one of the most common ways to calculate debt coverage ratio (total debt service). Your debt coverage ratio will be 1.19 if your annual net operational income is $25,000 and your total debt service is $21,000. Most commercial banks regard a ratio of 1.15 or greater to be ideal. If your ratio is 1 or less, it’s time to start thinking about ways to increase your cash flow.
Your first instinct may be to persuade a bank to give you a hefty loan, but be cautious. If your debt coverage ratio indicates that the loan you’re looking for will be a stretch, you’re likely to have trouble making your payments.
2. Boost cash flow in order to pay down debt
Being in debt is not a desirable situation. As a result, paying off debt should be a top goal for most firms. Here are a few ideas for increasing your cash flow so you can pay off your debt faster.
Increase productivity: Improving your company’s efficiencies or finding new revenue streams are both good ways to boost cash flow. Enhancing staff skills through training or implementing new technologies can be excellent investments in increasing productivity and earnings. New marketing activities can also help you make more money. Granted, this will raise costs in the short term, but a well-planned marketing strategy can boost revenues, which can then be utilised to pay off debt.
Renegotiate terms with vendors: Good account payable management can boost cash flow and help you pay down debt faster. Many vendors may allow you to pay in 15, 30, 45, or even 60 days after receiving your goods or services. On the other hand, you might be able to negotiate an early payment discount, which might range from two to ten percent. Finally, look for new suppliers who can provide you with better rates on a regular basis. These are all excellent methods for boosting your income flow.
Inventory turnover optimization: Inventory that is stagnant or inaccessible can deplete your cash reserves. Inventory should be continuously managed, and “just-in-time” purchases should be made to meet anticipated demand. Work with vendors who offer consignment inventory or return rights for unsold goods if at all possible.
3. Request a reduced interest rate from your credit card company.
The national average annual percentage rate (APR) for credit cards has dropped to 14.95 percent. While interest rates are at historic lows, many people would consider paying nearly 15% on a loan to be excessive. To be honest, it is! In order to prevent interest charges, you should pay off your credit card amount every 30 days.
Unfortunately, many businesses are drowning in credit card debt. Paying down high-interest credit card debt should obviously be a priority for any company. Obviously, this can be difficult for some companies. One option in these situations is to explore a balance transfer. A balance transfer is a method of consolidating credit card debt into a single card with a lower interest rate. Balance transfers come with fees, so do the arithmetic to make sure the lower finance rates outweigh the expenses.
In fact, asking for a reduced credit card interest rate is the simplest method to get one. If you have an excellent credit score and have been a long-term customer who pays on time, all you need to do is ask for a lower interest rate. You may save hundreds of dollars per year if you can lower your interest rate by one or two percent.
4. Make sure your debt isn’t a liability in the future.
By the end of 2015, interest rates for credit cards, mortgages, auto loans, and lines of credit are predicted to climb by 1.25 to 1.50 percent. Businesses with significant debt and variable loans will be the most vulnerable if and when interest rates rise. With interest rates at all-time lows, it’s a good idea to lock in a fixed rate loan before they climb. A fixed rate interest loan is one in which the lender promises to keep a specific rate for a set length of time. This guarantees that you pay the lower rate even if the interest rate rises. The first step is to figure out whether you have fixed or variable-rate loans.
5. Consolidate your debts
Consolidating debt is one of the most efficient ways to reduce interest rates and pay off debt rapidly. Rather than paying multiple loans with different interest rates, you can combine them all into one low-interest loan.
Let’s imagine you have two loans: one with a current balance of $10,000 and a 13 percent annual interest rate, and the other with a current balance of $20,000 and a 12 percent annual interest rate. Currently, your monthly payment is $1200. Let’s say your interest rate reduced to 9.2 percent as a result of debt consolidation. You’d have to pay $750 per month. You will save $450 a month as a result of this. To find out if debt consolidation is suitable for you, speak with a financial expert.
Your personal and business finances will be affected by the decisions you make today in the long run. Before you commit to a certain solution, consider all of your financial resources and thoroughly investigate your possibilities.
When it comes to deal with debt, the best advise may be what our parents taught us as children: don’t spend more than you make.