12 Steps To Pay Off Pandemic Debt To Save Your Small Business
When the economy shuts down due to a pandemic, small business owners struggle the most. Now businesses are reopening across the country, but the challenges persist. You are probably thinking about the money and debt your business has accumulated.
If you haven’t been able to pay off your trade debts, your creditors may turn to you for money. They can do this by threatening you or your business with legal action.
There might be nothing worse than being in debt of any kind. You feel bad when you are dealing with business debt. Your current financial situation is unsustainable due to the pandemic.
You are about to file for bankruptcy and possibly lose your small business altogether.
You can’t deny your small business debt. But, there is no reason to give up hope. You can try to get it under control or find other ways to get out of it. If you’re struggling with small business debt, I’ll walk you through some steps to pay off your debt and get your business back on track.
1. Seek advice on commercial debt
Commercial debt counseling is no different from regular credit counseling programs organized for individuals. Trade credit counseling can help you get rid of your debt and help business owners avoid declaring bankruptcy. A certified counselor will design an affordable repayment plan after reviewing the financial situation of the organization.
2. Borrow from a personal or professional savings account
Business owners can withdraw money from their personal or professional emergency fund to eliminate debt. Once they have paid off the debt, it will help improve their credit rating. But if they have overwhelming debt, they may not be able to eliminate it by taking money from their personal savings account.
3. Negotiate with creditors
If you negotiate with your creditors to reduce the outstanding balance, then you can pay it off. If you can hire a professional debt arbitrator, he or she can drastically reduce the outstanding balance to a reasonable amount.
4. Go for business debt consolidation
If you feel that you cannot pay off your debts with the financial advice of a credit counselor, you can take out a business debt consolidation loan. Getting a business debt consolidation loan is not as easy as taking out a personal consolidation loan because it is usually a much larger amount to cover the business organization. You will need a business budget to ensure the lender will pay off the loan on time, and they will understand that you can grow your business. If the lender agrees, you can take out a loan with a lower interest rate and then consolidate your payments into one monthly obligation.
5. Hire a debt restructuring company to settle your commercial debt
You can settle business debts if you are under great pressure due to missed payments and defaults by contacting a reliable debt settlement company. The negotiator can convince your creditors to reduce the outstanding debt by 40% to 60%. It may be helpful for you to pay off the debt amount. Usually, creditors will accept the proposal if they see that you can go for bankruptcy. It could create a bigger loss if they don’t get the money after you’ve paid off your secured loans. In a debt settlement, you must make a lump sum payment of the entire settlement amount.
6. Revisit Your Small Business Budget
Chances are, you’ve been on a budget to keep your finances on track. Since you were unsuccessful with this budget, it’s time to reconsider it. Allocate a portion of your budget to all variable costs like manufacturing materials. Keep track of your pennies so you know where you are spending your hard-invested money.
7. Try to pay off high interest debts
The first thing you need to do as a business owner is identify all of the aspects of your business that have put you in debt and tackle them head-on. When customers don’t pay back on time, your expenses skyrocket. If you want to avoid all of this, you need to empower your customers. Consider increasing collection efforts so that you can free up some cash and focus on your high interest debt. Selling unused gear can also be a good idea.
8. Reduce your expenses
If you are struggling to pay off your business debts, your main job is to reduce your expenses. You can use this extra money to pay off your small business debts. This is useful for quickly paying off the amount owed and repairing your bad credit.
9. Avoid transferring your business assets
Many business owners are in such need of help that they transfer their business assets to friends and family in an attempt to hide them from creditors and lenders.
However, lenders are used to tracking these transactions and recovering the property. You could face civil or even criminal fraud charges as a result of your actions.
10. Go bankrupt
You still have options if all else fails. If a small business can’t manage its debt, maybe it’s time to consider selling the business, liquidating its assets, or filing for bankruptcy. Try to contact a lawyer for help.
11. Renew your insurance policy
You may find it difficult to obtain insurance for your business if you file for a Chapter 11 reorganization or Chapter 13 bankruptcy.
Many insurance companies are reluctant to provide coverage for companies involved in these cases.
So, before you pursue bankruptcy, you must renew your insurance contract. If you continue to make regular payments, the insurance company cannot cancel your policy.
12. Sell your business
If all else fails and bankruptcy is out of the question, you may need to consider selling your business to make ends meet.
But, ideally, this will not be necessary. You should be able to pay off your small business debt.
In today’s economy, owning a small business is very difficult. When you start a small business, money is hard to come by and credit is hard to come by. With the economy stuttering from the pandemic, dark clouds continue to hang over the prospect of a strong economic recovery. Lenders are unwilling to lend credit at a reasonable rate of interest because they fear a credit collapse. So, to finance your small business, you have to either take out a high interest loan or take out several small loans, which puts you at an economic disadvantage. After the initial cost of starting your business, you need to establish it. It also requires some funding. However, you cannot continue to take on debt as if you have accumulated a huge debt; no simple debt relief option will help. You will only be left with the choice of bankruptcy, which can seriously damage your credit score.
So, before you get into big trouble, lower the cost of your small business so that the amount of financing you need is low. In addition, by reducing costs, you can successfully save money and pay off debts that you incurred while starting the business.
Lyle Solomon has considerable litigation experience as well as substantial practical knowledge and expertise in legal analysis and drafting. Since 2003, he has been a member of the State Bar of California. In 1998, he graduated from the McGeorge School of Law at the University of the Pacific in Sacramento, California, and is now senior counsel for the Oak View Law Group in Rocklin, California.