There is much talk today of debt relief for consumers and mortgage holders. Unfortunately, however, consumers and mortgage holders aren’t the only ones experiencing difficulties with debt. The current financial conditions are perilous for businesses of all sizes, particularly those affected by slow-downs in consumer spending. But whatever the source, many businesses are running near the edge and many business owners are growing more desperate for business debt help.
So what can you do when your business’s debts are growing and the checking account is getting closer to bottoming out every month – or when you’ve already bottomed out?
Understanding your Business
Before trying to resolve debt issues, business owners should review their business carefully and understand whether or not the business can be run profitably under current economic conditions, or under conditions that are likely to come about soon. Hopefully, the answer is “yes” and, if so, by all means seek debt relief.
Reviewing your business and understanding the source of your debt is essential for more than just answering in your own mind if you have a viable business. To seek debt relief, you’ll also need to show other businesses that are likely to provide business debt help how keeping you in business will help them stay in business or be more profitable.
Tools for Reducing Business Debt
There are several common methods to reduce business debt. For most businesses, the final solution will involve blending these approaches. Large businesses will probably need to obtain legal representation to manage the issues, but small businesses might be able to manage on their own.
- Also read: Debt matters companies
Whether you hire an outside firm or take the responsibility yourself, the process involves negotiations. A key element to successful negotiating business debt help is to understand the potential motives and outcomes for your adversary – how keeping you in business will help them stay in business or be more profitable?
Negotiate with suppliers
You may be able to reduce your accounts payable – present or future – by negotiating business debt help with your suppliers. Reducing liabilities by direct negotiation is the least costly way to control debt in the long term.
To do this effectively, you need to understand where you stand in the eyes of your suppliers, and what their profit centers are. This will help you target individual suppliers with specific proposals.
First, are you a critical or substantial component of a supplier’s business? If you comprise twenty percent or more of their business, they probably won’t push you over the brink if they can avoid it. Even if you deliver five percent of a supplier’s business, the impact of losing your business is significant.
Second, what is the supplier’s profit margin on your account? If, for example, your supplier is delivering bulk products at low margin, they’ll have less room to negotiate business debt help. Their only option may be to allow a slight extension on payment time, or a larger balance on your account – essentially, they are taking on more debt to allow your business to survive. The smaller their margins, the more likely you’ll need to demonstrate the viability of your business. If the supplier is delivering high margin services, they have more room to negotiate. Cutting in to profits, although painful, is easier than taking on more debt.
- Also read: National debt history
Third, understand if your supplier can replace your revenue quickly. A high margin business that can find replacement business quickly wont’ be especially forgiving. You’ll need a very strong argument to show them why they should forgive payments or accept lower profits.
Everyone is busy. Remember when you seek business debt help from your suppliers, you’re asking for a favor – albeit one that might be in their best interests. Come prepared with a specific proposal that they can act on immediately if it works for them.
For example, suppose you’ve targeted your law firm as a supplier for whom you provide a significant portion of high margin business that is difficult for them to replace. Bring them a specific rate proposal and explain to them how that rate proposal will allow you to maintain your business relationship with them.
Seek Debt Consolidation
Another option for business debt help is to seek a loan to consolidate debts – a “debt consolidation loan.”
A debt consolidation loan is used to pay other debts. They eliminate all other loans, and replace them with a single loan. An important aspect of debt consolidation loans is that they create a single payment on a single interest rate with a single term, substantially reducing the effort required to manage payments.
- Also read: Do you need debt counselor help?
Debt consolidation loans come in a variety of flavors, but combine the same ingredients in different ways to give business debt help. First, they almost always increase the term of the loan. That is, the debt is stretched out over a longer period. Second, they usually alter the average interest rate of the debt. Third – and most importantly to you – they typically lower your regular payments.
Remember, like you in your business, the company that is consolidating your loan wants to make a profit. They’ll profit from your business primarily by extending the term of your loan, which often makes the total payment amount with the consolidation loan greater than the original payment amount with many loans. This provides business debt help by reducing your immediate costs and allows your business to survive.
And of course, like your suppliers, they’ll want to know that they’re not throwing good money after bad. Again, understanding your business and coming prepared with a specific proposal is valuable.
Remember, they key to getting business debt help is to first understand your business, and then understand how keeping you in business will help the businesses around you.
