Debt

Debt Management

How to manage your small business debt

Most small business owners incur debt at some point. Unless you’re quite wealthy, it’s very difficult to get a business off the ground without taking out some loans.

There’s nothing wrong with going into debt. It’s a financial risk, but is necessary if you want to build a successful business. What matters is how you manage the risk.

Here are a few debt management tips that can help you minimize the negative impact that debt has on your finances:

  • Don’t borrow more than you need. This is the most important factor in managing your debt. Figure out how much money you need and don’t borrow a single cent more. Interest charges can be crippling to a small company. Keep yours to a minimum.
  • Shop around. Before you take out a loan, take the time to find out who is offering the lowest interest and best terms. Think of loans like a major purchase - you wouldn’t buy the first car you see at a dealership without comparing it to others, so you shouldn’t take the first loan you come across either.
  • Read the fine print. Loan offers with features like no money down and ultra-low interest are rarely a good deal. They’re often filled with fees and penalties that can really hurt you. Consult a professional before taking out a loan, and make sure you understand all the terms.
  • Stay on good terms with your lenders. Periodically check in with the financial institution to which you owe money. Inform them immediately if you ever think you’ll miss a payment. Also, make sure they are kept up-to-date if you change addresses or phone numbers.
  • Know your payment schedule in and out. The best principle is to never miss a payment. Remember that it can take over a week for a payment to be sent through the mail and processed, so plan accordingly.
  • Pay as much as you can each month. Large monthly payments will not only pay off your debt faster, but you will also end up paying less overall because less interest will accrue. Stay within your budget, but pay off as much of your debt as you can afford to every month.
  • Know your rights. If you are ever unfairly pressured by your creditors, consult the Federal Trade Commission to find out exactly what your rights are.