Avoid Unnecessary Business Debt

Business Debt

Business debt comes in two forms. The first is the type of debt that comes in the form of financing – bank loans and things of that ilk that are used for everything from launching a startup to growth capital. The second type of business debt can be anything from unpaid customer invoices that cause a strain on internal resources, to dips in the economy that leave business owners digging into their own pockets to keep their companies afloat. Fortunately, there are a few guidelines to avoid business debt, and stay on the path to success.

Business Debt From Unpaid Invoices

Even though it is a standard practices, many new and small businesses are hindered by aging windows on customer invoices. Sales are wonderful, but waiting 30 or more days to receive payment from customers can cause a serious strain on cash flow. Traditionally, business owners would turn to bank loans in order to keep the business running until revenue began coming in, but that option involves taking on more business debt. Instead, many businesses are turning to factoring in order to ensure that the cash flow remains steady.

Factoring involves selling unpaid invoices to a third party in exchange for immediate cash. This eliminates the strain on cash flow caused by the aging window on invoices, and the responsibility of collecting payment falls to the factoring company. Many businesses build long term relationships with factoring companies because of the quick turnaround on invoices, and the fees end up being nominal compared to the volume of sales.

Consolidate Business Debt

For businesses that have taken out multiple loans, paying every lender different amounts at varying interest rates can take a toll on available funds. By using a consolidation loan to refinance existing business debt under one manageable monthly payment – and at a lower interest rate – a company can save money and free up resources to grow successfully, rather than get weighed down with multiple loan payments.

Don’t Be Afraid To Negotiate

When applying for loans, most agreements are not set in stone. While banks have become very conservative in their lending practices since the crash of 2008, and are reluctant to give any leeway when it comes to the rates and terms they present to borrowers – private and commercial lenders are not. When working with commercial lenders, they will look at much more than just the bottom line to understand your needs, and structure the best agreement to make all parties happy, so that you aren’t taking on more business debt than you can handle.

By following these guidelines, you can avoid a number of business debt issues that plague entrepreneurs.


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