Running a small business is expensive. Really expensive. You need to bring in enough cash to not just cover your staff’s salary but also to pay for everything from cleaning the office to purchasing inventory.
To accomplish all of this, some business owners find themselves taking out loans or tapping into their business line of credit. There’s nothing wrong with taking on some debt to grow your business, but the sooner you pay it off, the sooner your company’s financial standing and revenue improves.
Here are six tips to help you get out of business debt—fast!
1. Make a New Business Budget
Start by taking a cold hard look at your business’s current financial situation. For many small business owners, what feels like insurmountable debt is actually disorganized income. There may be opportunities with your current cash flow to move money around and pay off your debt faster without spending more money each month.
2. Cut Back on Spending
As you dig into your new budget, you may find opportunities to cut back on unnecessary expenses. To be clear, we don’t suggest you stop investing in your business. Instead, it’s a matter of reducing your overhead so you can focus more on paying off debt. For example, do you buy your team lattes each morning? Instead, invest in a fancy coffee maker for the office. You’re still treating your staff while also cutting back on your expenses.
3. Start by Paying Off Your High-Interest Debt
After analyzing your budget and cutting back on unnecessary expenses, you’ve hopefully found some extra cash that can help pay back your current debts. Gather all of your statements and take a close look at each loan’s interest rate and minimum monthly payments. Many advisors recommend paying off your high-interest debt first. This is called the “avalanche method,” and it allows you to pay off your debts faster while minimizing the overall amount of interest you pay. Just make sure you can still afford the monthly payments on your lower-interest loans at the same time.
4. Consolidate Your Current Debts
Consolidating your bills can also put you on the fast track to getting out of debt. Combining all of your loans into one payment can lower your overall interest rate. Some business owners also appreciate the simplicity of having to pay only one bill each month.
5. Consider a Loan
While it may seem counterintuitive to take out a loan to pay down your debt, it can sometimes boost your business’s financial standing. As Fit Small Business notes, out of almost all forms of financing, SBA loans typically have the most competitive interest rates and longest repayment terms. However, if you need the cash fast, you may find the process for an SBA loan takes too long or requires too much paperwork.
If you’re a homeowner, you also have the option of tapping your largest financial asset—your home—to get out of business debt quickly. One way to access home equity is through traditional loans, though you’ll want to do the math to see if interest rates, terms, and other factors will help or hinder your financial situation.
6. Get a Home Equity Investment
If the thought of taking on more debt or committing to yet another monthly payment fills you with dread, you have options. Homeowners can access their home equity—without taking out a loan, incurring more interest, or dealing with monthly payments. Home Equity Investments, like those from Hometap, give you a percentage of your home’s equity today in exchange for a share in the future value of your home. Since they’re an investment, rather than a loan, it’s a way to grab your equity without taking on more debt.
The tips above can help you get out of debt and start investing in the projects and initiatives that will take your business to the next level. If your business credit score took a ding during the process, no worries. Here’s how to get back on track.
Take our 5-minute quiz to see if a home equity investment is a good fit for you.
YOU SHOULD KNOW…
We do our best to make sure that the information in this post is as accurate as possible as of the date it is published, but things change quickly sometimes. Hometap does not endorse or monitor any linked websites. Individual situations differ, so consult your own finance, tax or legal professional to determine what makes sense for you.