A lot of people are worried about their business debt. And with the coronavirus pandemic, it’s possible that more businesses will be having this dilemma.
In fact, one survey revealed that more than 6 out of 10 small businesses said they only have two months or less before they succumb to the economic crisis. At least, if the situation does not get any better. A lot of small businesses have seen a huge drop in revenues and most of them have either closed their doors temporarily or permanently.
Since our culture makes it okay to use credit to put up a business, it is not unlikely that most of the owners are struggling with business debt too. Without revenue, it’s not surprising to realize that a lot of them are in trouble.
If you are a business owner, how are you coping? You’ve worked long hours to take your business to where it is right now. You should not give it up without a fight – even if it feels impossible to revive it. If you have debts, there is a way to fix that.
It’s called debt consolidation. How can it help?
Well, for one, it can make your monthly payments bearable. If you do it right, it can even help you get a lower interest rate on your new loan. With your business debt slowly progressing, you don’t have to worry about it too much. Your mind would not be boggled with too much stress. That makes it easier for you to figure out how to use your limited resources to salvage what’s left of your business.
Steps to borrow a loan to consolidate business debt
For some people, it doesn’t make sense to borrow more money to consolidate debt during a crisis. But if it will give you more room to get out of this mess, then it is worth a shot.
Here are the steps that you need to follow to get a consolidation loan to deal with your business debt.
Be clear with what the loan is for
While a debt consolidation loan will help, you have to be clear with how you really want to use it. Besides, the lender will ask you what the loan is for. It’ll help them figure out the best terms to give you for that loan. Do you want to use it for consolidation purposes only? Or do you want to borrow more than your current debt so whatever is left can be used to help jumpstart the business? You need to be clear about this. You don’t have to reveal every detail of your plans to the lender. But you have to define it clearly for your own benefit. You want to make sure that you are making the right decision. The reason for the debt will help you calculate how much you really need. Not only that, but it will also allow you to identify the right type of loan that you need to borrow.
Choose the debt you will borrow
If you understand the purpose of the loan, it will be easier to determine which debt will help you achieve your goal. Will a debt consolidation loan be enough? Or will you have to use a balance transfer card to deal with your high-interest rate business cards? You have to consider which of these will help you get the most savings and out of debt faster.
You should also consider the lenders that you will borrow from. There are government agencies that help small businesses through financial assistance. There are also angel investors that you can consider. Traditional banks and financial institutions are also among your options.
You just have to take the time to figure out which of the options will give you the best terms.
Prepare the requirements
After making a decision on who you will borrow from, it’s time to prepare the requirements. Find out what you need to submit when you apply for the loan. It’s better to prepare for it ahead of time. Complete the application form and gather them with the other documents that you need to submit.
Among the things that they need to know will include your credit score. If you don’t have a good credit score, that won’t necessarily mean you will not be approved. You can still get loan approval. But it will affect the terms of the loan. It can make your interest rate higher. That would make your debt payments bigger. And it will make things harder to get out of business debt.
The lender will also need information about your business. This is mostly to determine if you can afford to pay off the loan that you will borrow. They would want to know how long you’ve been in the business and if you make enough money. They will mostly need documents about your business to get this information.
Send your application
When you have all the documents and requirements ready, it’s time to send in your application. Make sure the form is complete. That way, the lender will not have to keep on going back to you for more information.
It’s also important to learn how you can increase the chances of getting loan approval. What should your ideal credit score be? What documents you have to present in order to get the approval that will help you with the business debt? Make sure these are prepared so you can get positive feedback on your application. It will also expedite things because the lender has everything they need to make a decision.
Hopefully, if you submit everything and give them the information they need, you can get the loan approval that you need to deal with your business debt.
Tips to help you deal with business debt
Even if you got a loan approval, that does not mean you are already in the clear. The loan may have helped consolidate your business debt, but you still have to pay that loan. If you don’t take that seriously, you will still lose your business.
So what can you do to help deal with business debt in the midst of the crisis? You’ve already done something with your debts. What else can you do?
Look for financial help
According to reports, the federal government has a $2 trillion coronavirus relief package since March. Included in this package is up to $349 billion worth of forgivable loans that small businesses can avail. This is part of the Paycheck Protection Program.
For sure, there are other options when it comes to financial help. Some can also come from the local government too. Do your research so you can tax advantage of these.
Find ways to increase sales
Admittedly, this will be harder now because consumer spending is expected to go down because of the recession. This is especially true if you are not selling an essential product or service. But if you want your business to survive, you have to make sure that it continues to earn revenue. This will be tough but there are ways to make your business profitable again.
You can market it on social media. If you are not doing that yet, then you need to get things started. Engaging your customers will keep you in their minds. That can increase the likelihood that they will avail of your products or services.
Having a loyalty program is also something that you can do. And placing ads to inform others of your business. Make them view your business as an “essential” so they will buy from you.
Remember, the more you earn, the more money you can use to pay your business debt.
Lower your overhead
Finally, you should also consider lowering your overhead expenses. Anything that you save can also be used to help you get out of your debts.
As much as possible, you should avoid laying off people – if you have to. Maybe talking to them and having them shorten their work hours or lowering their respective incomes will help you save on costs. You might also want to sell some assets and equipment that you don’t really need. If there comes a time that you need these things, you can always lease them.
Downsizing into a smaller office might also help. Having a smaller space will lower your bills. It’ll help you save money on your monthly expenses.
Right now, you will need to make a lot of sacrifices if you want to pay off your business debt. Just make sure that you stick to the plan so you can salvage your business. With hard work and determination, you should be able to reach your goals and bring your business back on track.