6 Efficient Ways to Reduce Small Business Debt

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6 Efficient Ways to Reduce Small Business Debt

Feb 05, 2024

Expenses can add up fast when you’re getting a new business off the ground. Over a third of small business owners say they underestimated their startup costs, according to one Business.org survey. Business loans, credit cards and lines of credit can provide quick, much-needed capital, but they can also saddle you with debt payments. That can create financial stress and impact your ability to grow and scale. Consider these six strategies for reducing small business debt.

1. Consolidating your business debt

Consolidating your business debt allows you to bundle your unpaid debt. It involves taking out a new business loan, then using that to pay off your open balances. That can allow for a single monthly debt payment, which makes for easier budgeting. You might also save money in the long run by securing a lower interest rate

Rates and lending requirements vary from one financial institution to the next. Your business may need to be operating for a certain amount of time to qualify. Your personal credit may also come into play. With that said, some lenders allow for large loan amounts and long repayment terms. Shopping around and comparing lenders can help you find the best debt consolidation loan for your small business.

2. Setting a timeline to get out of debt

The first step in reducing your business debt is getting clear on what you owe — and when it’s due. That’s where a debt schedule can be especially helpful. It's a visual aid that illustrates the most important details around your debt. You can do this in just a few minutes by creating a simple spreadsheet. For each debt, list out the following information:

  • Creditor
  • Origination date
  • Original amount borrowed>
  • Current balance
  • Interest rate
  • Monthly payment
  • Maturity date
  • Collateral that may be attached to the loan

Seeing it all in black and white can help you prioritize your debt and make a plan for paying it off. A debt schedule can also set the stage for more accurate bookkeeping. This information can come in handy when deciding whether or not to seek additional financing in the future.

3. Revisit your budget

In some ways, business budgeting isn’t all that different from maintaining a personal budget. Both are designed to help you keep track of your income and expenses. Managing your business’s finances comes down to accounting for revenue and costs. The U.S. Small Business Administration (SBA) suggests starting with a balance sheet. This is a financial statement that summarizes your business’s assets and liabilities as well as your equity position. It’s often prepared at the end of marking periods, like every month or quarter.

It’s also wise to have a point person to manage payroll, accounts receivable, accounts payable, available cash and bank reconciliation. Investing in accounting software can help streamline your business budget and prevent costly errors. It can also make it easier to review your revenue and expenses — and curb wasteful spending.

4. Automating your debt payments

Missing a single debt payment can damage your personal credit score and stay on your credit report for seven years. It’s also bad for business. Missed payments can:

  • Trigger late fees
  • Damage your business credit score
  • Make it difficult to qualify for additional funding in the future
  • Negatively impact your business’s cash flow

Automating your debt payments is a simple solution. These monthly obligations should already be listed on your debt schedule and business budget — but putting them on autopilot greatly reduces the chance of missing a payment. It can also free up time that you can spend on other business tasks.

5. Consider investors

Every small business owner is different. Some prefer to fund the business themselves or seek financing. One of the main benefits of this route is that you’ll retain full ownership of your business — but it can also create financial challenges. Investors can infuse your business with capital and help accelerate growth. In exchange, they’ll receive an ownership stake in the company. You can secure equity funding through:

  • Angel investors: Wealthy individuals who typically provide cash and business guidance
  • Venture capital: Firms that invest in promising startups that have potential for growth and revenue
  • Equity crowdfunding: Platforms that connect startups to groups of interested investors

Friends and family might also be interested in getting in on your business. You can look into sweat equity, as well. This is when an employee accepts a reduced salary (or no pay at all) in exchange for equity. It’s a risk on their part, but it could lead to a worthwhile payoff if the business succeeds.

6. Apply for small business grants

A small business grant provides funding that doesn’t have to be repaid. This type of free money is available through the federal government, state and local governments, nonprofit organizations and private organizations. They come in all shapes and sizes. Many grants are designed to help specific types of entrepreneurs, like minority business owners, veterans and women. Others are geared toward startups. Grants can be competitive, but that’s no reason not to apply. The following resources can be good places to start:

There are many ways to reduce small business debt, which has its perks. Doing so can allow you to focus on what matters most — like managing your business and positioning it for growth.

Meet The Author:

Maxime Croll

Maxime Croll

Maxime is a Sr. Director at LendingTree focusing on the insurance industry. Previously she was the Director of Product Marketing at CoverWallet, a commercial insurance startup, and helped launch NerdWallet's personal insurance business. Maxime has contributed insurance and business insights to Forbes, USA Today, The Hill, and many other publications.


The opinions expressed in our published works are those of the author(s) and do not necessarily reflect the opinions of the National Association for the Self-Employed or its members.

Courtesy of NASE.org