Deliberations at a cafe over business decisions

5 ways to reduce small business debt

When you’re starting a new business, cash flow is very important. Having enough money for daily operations is the foundation of keeping a small business going. However, a lot small businesses turn to debt to get off the ground and help expand their operations. That’s a smart business move as long as the debt is with purpose and managed responsibly. Applying for a small business loan can help purchase equipment, hire employees and increase marketing, but small business owners don’t want to be in debt forever.

Managing small business debt is very similar to paying off personal debt. You want to apply for a small business loan for a purpose, you want to ensure you can afford the monthly payments, and you want to reduce small business debt as soon as possible.

Here are four ways to help reduce small business debt:

Rethink your budget spending

It’s probably very rare that a start-up business will be profitable from the first day they open their doors. This is where small business loans come into play, however—just like individuals—businesses don’t want to live on debt. Daily operations play a major role in how cash is handled and if a small business is overspending it may always find itself in debt.

Increasing operations efficiency is one way to help cut spending, increase cash flow and save more money. The more money small business owners save on spending, the more they can allocate towards paying off debt.

Lower monthly operating expenses

Sometimes the cost of doing business just too high. If your budget is as tight as it can be, the next place to look to save money is operating expenses. If the cost of supplies, partners, manufacturing and rent is too high, it may be time to look for ways to cut costs. This can include looking for a new location, changing vendors or exploring new manufacturing options.

Increase revenue (aka sales)

This is easier said than done, but if you want to reduce small business debt one way to do so is increase your net monthly income. After spending less and lowering costs, the next best thing is to increase sales. Depending on the type of business you have this can include investing in online marketing through search engine optimization and social media or offering current clients a referral fee.  

Restructure your debt

According to Entrepreneur, restructuring your debt can help lower the monthly payments obligations. This includes contacting your lender to negotiate the interest rates and consolidating multiple loans. “Consolidating your loans into one payment allows you to reduce monthly costs without harming your credit. The best-case scenario is consolidating several shorter-term loans into one long-term package.”

When a lower portion of your monthly payment is going towards interest, more is going towards the capital and this helps reduce your small business debt as quickly as possible.