If you’re a small-business owner, you’ve probably heard that your company’s borrowing power is limited because of the risk to lenders. However, it’s worth noting that debt can actually help your company grow. Here are some tips for addressing business debt responsibly and successfully.”
Debt Advice for Small Businesses – Business Debtline
Debt Advice to Small Businesses – Business Debtline Many small businesses have had trouble getting money from banks and lenders due to the risk they pose. This problem is especially relevant at a time when big companies such as Amazon, Facebook and Google seem unstoppable despite their huge amounts of cash in their bank accounts. This year, the Consumer Financial Protection Bureau (CFPB) issued a report suggesting that banks looked to differentiate between their clients based on risk. So while many businesses are taking out loans or credit cards to produce revenue, those with stronger credit ratings are getting approved for bigger loans, bonds and credit lines at the same time.
Debt Advice for Small Businesses – Business Debtline Debts for small businesses grow faster than debts for large corporations. And small businesses are more likely to go out of business. In other words, if you’re a small business owner, you’ve probably heard that your company’s borrowing power is limited because of the risk to lenders. However, it’s worth noting that debt can actually help your company grow. Here are some tips for addressing business debt responsibly and successfully:
Know Your Terms If you’ve ever taken out a loan, you know that there are a number of terms and conditions to abide by. It’s important to understand how those terms affect how much interest and how many fees you owe the lender over time. The same idea applies for credit cards or lines of credit. The Fair Credit Billing Act and the Equal Credit Opportunity Act also apply to small business owners just like they do for individuals. This means that you’re protected from terms that might be unfair or misleading. So if you have received a credit card offer from a small business lender, know that your rights are protected by federal law.
Pay Your Bills on Time It’s not uncommon for small businesses to get behind on their bills, especially during slow periods. You can avoid this by setting automatic payments with your bank so that you don’t forget to send money when it’s due. It’s also a good idea to set up an alert with your bank or credit card company so that you’ll get a notification if your payment is late.
Start Saving Some experts recommend setting aside 10% of your income as savings. But if you’re trying to keep costs down while paying off debt, consider setting aside the equivalent of at least 1% of your income in savings each month. The key is to save enough money so that you can pay down the principal on your debt. This way, some of the interest owed will be offset by money saved up in the principal amount.
Don’t Panic If You Can’t Pay Off Your Debt If you’re having trouble paying off your debt, don’t panic. It’s perfectly okay to make small payments over time to ensure that you’ll have enough money to pay what you owe. When it comes to a credit card or other type of debt, the original balance is never actually paid off. Instead, it becomes one of the characteristics that lenders look at when determining whether you still qualify for credit in the future.
Don’t Abuse Your Credit If you’re paying off your debt as you go, try not to put more than 30% of your income toward it. Researchers have found that tolerance for debt decreases with every $100 of extra debt a person has. So if you find yourself spending more on fees and interest than you’re paying off, consider renegotiating with your payment arrangements or setting up a payment plan with a credit counselor.
Recognizing the Value of Loans Loans can be useful in the early stages of starting a business. But be careful how much money an individual borrower requests from a lender. The Small Business Administration recommends starting your company with less than 33% debt while you increase sales to help pay off principal.
Don’t Borrow More Than You Need There are certain things that businesses often need to get started, but they’re not always essential to long-term success. If you’re taking out a loan, don’t borrow more than what you’ll actually need over the next 12 months. This will help avoid problems down the line when a lender starts calling in payments that you won’t be able to make because you spent it on additional inventory or equipment.
So what’s a small business owner to do if they’re short on funds? Well, as mentioned above, first make sure you understand your company’s borrowing limits. If you need new equipment or software that’s beyond your credit limit, talk with a friend or a family member who can help pay for it. And if you’re not sure or comfortable with taking on a loan, consider financing through friends and family members.