Starting a business and working for yourself is an exciting prospect, and you’ll need money to get it off the ground. But when you’re in debt, it can make it seem like an insurmountable task. Finding ways to finance your business can be tricky and could make it hard to access sources of financing like business loans. Therefore, paying off debts should be part of your overall company strategy. In our post on ‘Strategic Implementation: More Than Just Implementing Strategy’ we noted how businesses always need to come up with strategies to achieve their goals. Something that is especially true when in financial trouble. While all this may be daunting at first, we’d like to help by providing a few helpful strategies to start and manage your business while in debt.
Reduce credit card debt – One of the leading causes of debt in the United States is credit cards. Jared Hecht, CEO at Fundera, a company that helps small businesses understand their financial options mentions that Americans have the highest credit card debt in U.S. history at $1.021 trillion. Carrying a credit card balance isn’t out of the ordinary. Marcus describes how 48% of Americans reported carrying a credit card debt at least some of the time during the prior year. However, this can make you a higher risk for lenders and make them more reluctant to give you a business loan. Prioritizing your credit card payments and paying them off can help you get higher business loans and will save you loads on interest payments.
Reduce personal expenses – Tightening your belt and cutting down your expenses as much as possible is a sacrifice you’ll need to make if you’d like to pursue your entrepreneurial dream. For example, entrepreneur Nicole Bandklayer, relocated from exorbitantly expensive New York to Minneapolis to cut on costs. She explained that keeping your bills low will save you the extra headache and free up extra cash for your business. Other strategies like smart meal planning can reduce your costs on food and reduce the need to go to restaurants while refinancing your car or home loans can help you lower your monthly payments and interest.
Asset-based debt financing – Many businesses that cannot show enough cash flow or cash assets can use physical assets as collateral. If your company uses equipment, say if you’re a restaurant, for example, you could obtain a loan by using equipment (like commercial refrigerators, freezers, etc.) as collateral. Just keep in mind that highly liquid collateral like securities is the preferable option. Investopedia notes that loans using physical assets are riskier for lenders, so the loan will be considerably less than the value of the assets. Alternatively, if your company provides services, and you’re in need of short-term financing, you could be eligible to access accounts receivable financing without needing to disclose your current debt.
Source investors – Even if you don’t have enough money to invest in your business, someone else probably does. Anyone from friends, family or people in the community can invest in your business. This is particularly the case if you’re starting a business in a specific niche that already has a large community. In this case, crowdfunding platforms like Indiegogo or Kickstarter can be a way to spread the word about your business and services and allow you to build up the capital you need.
Exclusively written for RedBeachAdvisors.Com
By: Alyssa Rylee