For many business owners, debt is just a part of life. When cash flow is tight and the bills keep on coming, it’s not uncommon for businesses to tap into their line of credit for a quick cash injection. Also, loans are often used to pay for replacements, upgrades, and expansions.
Many entrepreneurs apply for an SBA loan to start a business. If you manage your debt responsibly, you can still hit your business goals and improve your credit in the process. On the other hand, too much debt can cripple your business and ruin your credit.
Fortunately, there are strategies you can follow to manage your debt and improve your credit sustainably.
1. Know your creditors
Many businesses significantly underestimate the amount of debt they have. You need to know every single debt you have if you want to understand the extent of your liabilities fully. One neglected debt could cost you thousands of dollars in interest fees and penalties.
Start by listing every creditor and vendor, the total amount owed, the interest rate, the payment terms, and the maturity date. Knowing how much you owe and who you owe it to ensures you never miss your monthly payments. It also allows you to craft the best debt management strategy for your particular situation.
If you don’t have records for all your debts, you can pull up your credit report to confirm your creditors on your list.
2. Always pay on time
Late payments can financially set you back as you may incur late fees and other charges for every payment you miss. In many cases, repeated late payments can lead to an increase in interest rates and penalties.
To ensure you never forget your due dates, you can set up an automated calendar on your smartphone or computer. Set a reminder for every debt you have and the due date. A few days before the payment is due, you should receive an alert.
If you happen to miss a payment, don’t wait until the following month to remit the payment. Creditors often allow a few days after the due date before reporting the missed payment to the credit bureau.
3. Pay the minimum amount
You can’t be expected to pay all of your debts right away, but you still need to make some effort as a sign of goodwill to the creditor. To keep your account in good standing, make sure to pay the minimum amount on the due date.
If you take into account the interest, the effect may be minimal at most. But, it keeps your debt from ballooning further and allows you to catch up when things get better for your business. Repeated missed payments eventually lead to a default, something that you should avoid.
These pointers will help you better manage your business debt. If you still struggle to manage your debt and finance day-to-day operations, you might want to seek outside help. You can always renegotiate the terms or even consolidate your debt.
