NERDWALLET: 4 Tips For Small Business Owners To Pay Off Pandemic Debt | Business
After going through lockdowns, orders and the COVID-19 protocol for over a year, small business owners are starting to see the light at the end of the tunnel. But the debt that many must incur to survive a pandemic still casts a worrying shadow.
In February 2021, the US Federal Reserve reported that in 2020, 79% of small employers (up to 499 employees) had unpaid debts. This is an increase from 71% in 2019. Among businesses that applied for a loan, 58% said they applied to cover operating expenses such as rent and salary, but in 2019, it was 43%.
Paying off this pandemic debt is helping business owners rebuild their businesses. The following tips will help you clear your business debts faster while saving high interest in the process.
1. Create a debt repayment schedule
Chris Woods, founder of LifePoint Financial Group, a financial planning firm in Alexandria, Virginia, says strategic debt work can help pay off debt faster.
“People tend to invest money in (debt). Maybe they’ll pay a little more this month or that month, ”Woods says. A better approach? Create a detailed repayment plan.
Please explain in detail what you are borrowing, including interest rates and terms of repayment of your accrued business loan and credit card debt. Pay attention to grace periods, deadlines, and what action to take, such as asking for forgiveness if you receive a Paycheck Protection Program loan.
Then set a reasonable (read: achievable) timeline for paying off your debts and start collecting them one by one. Zack Reese, owner and COO of Colony Ruffers in Atlanta, said that if you’re juggling multiple loans or credit cards, you’ll focus your extra payments on the highest interest rate debt.
“This is your most expensive debt and you can save the most money by paying off this debt more aggressively,” said Reese, who is also a chartered accountant.
2. Find opportunities to reduce costs and increase revenues
“You can’t pay off your debt with the money you don’t have,” Reese says.
There are two ways to find more money: reduce your budget or increase your income.
To drive revenue growth, rethink your business model and look for opportunities to reach more customers or expand your business footprint. You can also take steps to speed up your cash flow. Renegotiate the contract and offer incentives to customers who can request prepayment or pay 6 or 12 months in advance.
To cut costs, watch your budget. Look at announcements, subscriptions, professional memberships, and even office space. What can I cancel, suspend or reduce?
Ken Alogy, Managing Director of Greenwood Capital Advisors, Washington, DC, said:
3. Consider refinancing and integration
Make your debt cheaper through refinancing. Depending on your loan history and your business, you may have access to better rates, lower monthly payments, or better repayment terms. The same applies to any business credit card debt you incur, says Woods.
“Look for an opportunity to transfer this debt to another card or another lender to avoid accruing interest,” says Woods. “It’s something everyone should know, especially if he’s on time for payment. “
Do you want to juggle several loans? Build them into one small business loan. If possible, make monthly payments at low interest rates. Extra Bonus: A lender has a payment.
4. Take advantage of free business resources
Running a business can consume it all. It is also possible to manage business debt. Are you doing both at the same time? Something could give.
“A lot (of small businesses) are in survival mode and have to forget that they are in control of their business, interacting with their customers and looking for growth opportunities,” says Alozie.
Connect with your SME development center or local community development company. You can also connect with mentors through SCORE, a voluntary organization that offers free mentoring for businesses.
These organizations monitor the status of development, including PPP loans and many rule changes, and send emails with tips, important deadlines, and updates to help you focus on your business.
“Don’t think you have to do it yourself. SCORE Certified Business Mentor Alozie said, “You have more leverage, so run your business in a pandemic. You’re not trying to keep up to date while you’re trying. “
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