How Do I Get Rid of Business Debt and Get More Credit?
Many small businesses had to assume new debt during the COVID-19 pandemic. Even when not facing a global pandemic, business debt may be unavoidable. However, some businesses may realize their debt is becoming unmanageable. If so, the following tips for getting rid of business debt may help. If you need more credit for your business, we offer a few tips for getting more credit too.
Ways to Get Rid of Business Debts
Some ways that you can get rid of business debts include:
Review Accounts Receivable
If your company has outstanding accounts receivable, try to collect those invoices. Use the funds to apply directly to reducing your debt payments.
You can consider selling your accounts receivable (factoring) for a lump sum payment. However, that payment is discounted, so you lose money, but it might be necessary if you need to get rid of debts quickly.
Many business owners realized they could save money during the pandemic by managing with fewer employees, using teleworkers, or hiring independent contractors. Some businesses learned to cut overhead because they were forced to do so.
As business picks back up after the pandemic, continue using the lessons learned to reduce overhead. Apply the savings directly to your debt payments.
Negotiate with Creditors
Negotiate with your creditors for better terms. You might be able to reduce interest rates or reduce the amount owed for a lump sum payment. Creditors understand that many small businesses are closing. Receiving a smaller amount to satisfy a debt may be preferable than receiving nothing in a Chapter 7 bankruptcy case.
There are a few ways that a business can increase its income. You can raise your prices for goods or services. However, raising prices may result in losing some customers and clients. You could lower prices to attract more business, but that could backfire on you if you reduce prices to the point you lose revenue instead of increase revenue.
If you can diversify, you might increase your income. Consider adding a new product or service, or tapping niche markets that have developed because of the pandemic. Just make sure that you do not incur new debt trying to diversity to pay off current business debt.
Upselling is another way to increase revenue. Package services and goods to encourage customers to purchase more from your company. You may also want to sell any surplus items that you have on hand that your company does not use. The funds from surplus sales could go directly to debt payment.
File for Bankruptcy Relief
Larger businesses can reorganize their debts in a Chapter 11 bankruptcy case. However, Chapter 11 may be too expensive for a small business. With the passage of the Small Business Reorganization Act (SBRA), small businesses can now afford to reorganize and get rid of debts through a Chapter 11 Subchapter V. The Act makes it more affordable and easier for small businesses to seek Chapter 11 debt relief.
If you want to close your business, you can file a Chapter 7 bankruptcy case. However, Chapter 7 does not eliminate a business owner’s personal liability for any business debts.
Obtaining More Credit for Your Business
A business may need more credit for a variety of reasons. Common ways that businesses obtain credit or financing include:
- Applying for a bank loan
- Opening a line of credit with a bank or credit card company
- Applying for a Small Business Loan
- Looking for new investors
Many small business owners are required to co-sign business debt. By co-signing debt, the owner agrees to be personally liable for the debt if the business fails to pay. Business owners may need to carefully consider the risks before co-signing business loans or credit accounts.
Get Experienced Legal Advice Regarding Business Matters from a Coral Springs Business Law Attorney
Attorney Matthew Fornaro assists business owners and companies throughout South Florida with business and legal matters. Our services include business formation, dissolution, and litigation. We also assist businesses with matters related to intellectual property and real estate transactions.
For more information or to schedule a consultation, call our office at 954-324-3651 or contact us online.