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6 Ways To Get Out Of Debt – Small Business Debt

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As lenders tighten the reins of borrowers and the prices of everything from materials to health care soar, many small business owners are under the weight of growing debt.

Last month, 8,113 businesses nationwide filed for bankruptcy protection, a 57% increase from the same period a year ago, according to Automated Access to Court Electronic Records, a company Oklahoma City Bankruptcy Management and Data Management.

Certainly, bankruptcy is a route small business owners can take to save their business, but such a decision comes at a high price. The attorney and court filing fees alone can go up to $ 8,000 or $ 9,000, says Charles J. Schneider, lawyer specializing in small business bankruptcy, Livonia, Michigan. There is also the long-term damage that bankruptcy causes to both the business and the owner. personal credit scores.

To avoid a similar fate, here are some ways small businesses can get out of debt without filing for bankruptcy:

  1. Reduce unnecessary costs and free up money
    Identify the parts of the business that put the business in debt in the first place and tackle them head-on, says Ken Thomson, co-founder of Biz911, a small business debt management company in Wilmington, Del., And author of “The Battle Scarred Guide to Small Business Debt Relief and Collection.” If customers aren’t paying on time, or your expenses are too high, consider stepping up collection efforts and ditching unnecessary expenses like office space or expensive phone systems. Another way to free up money is to sell unused equipment or scrap metal, he says.
  2. Review the budget
    If the debt continues to pile up, it probably means that the company’s current budget isn’t really working. Create a budget based on the current financial situation of the business. Make sure your business income can more than cover your fixed monthly costs like rent and utility bills. Next, allocate a portion of the budget to variable costs, such as building materials. Julie Welch, financial planner and accountant in Kansas City, Missouri, adds that business owners should spend a lot of what they have left on paying off debt. If you have credit card debt, for example, make sure you pay more than the minimum. Otherwise, she says, your debt will keep piling up and it will take years to pay it off. An inexpensive way to help you keep track of your budget is to use accounting software like this from Intuit. QuickBooks Where Accelerate, Sage Software To fish, Sageworks’ ProfitCents, MS Silver or web programs, such as Netbooks.
  3. Prioritize debt payments
    Tackle the company’s highest-interest debt first, advises Jerry Silberman, managing director of Corporate Turnaround, a small business debt restructuring company in Paramus, New Jersey. This will likely mean that you will be focusing your energies on paying off the credit cards. However, if you have personally guaranteed any of your business debts – that is, if a creditor or supplier can come after your personal property in the event of default – make sure that the repayment of these debts are also becoming a high priority, he said.
  4. Speak with creditors
    “To say [your creditors] the financial situation you find yourself in and the difficulties the business is going through, ”explains Silberman. Then ask them if they have a hardship plan that might offer better payment terms. If the creditor doesn’t offer one, ask for a payment plan or a reduced settlement amount. Make it clear – without being demanding – that “the less willing they are to accept or the more willing they are to reduce your debt, the faster you will pay them,” he says. The worst thing a business owner can do is set up a repayment plan with a creditor and a default, he says.
  5. Consolidate your loans
    Consolidating your loans into one payment allows you to lower monthly costs without hurting your credit, explains Thomson. The best scenario is to consolidate several short term loans into one long term package.
  6. Ask for advice
    Negotiating with creditors can be a trying experience. If creditors are unwilling to work with you, seek help from a credit counseling agency. While these nonprofits typically offer debt management help only to consumers, some, such as the Fort Lauderdale, Florida-based company, Consolidated credit counseling services and Richboro, Pennsylvania, Credit counseling center – will work with small business owners. But for more complex commercial debt issues, Joan Reading, president of the Credit Counseling Center, recommends seeking the advice of a bankruptcy lawyer.

Another alternative is to contact a professional debt management company like Company turnaround. These companies can help spot inefficiencies and negotiate better payment terms with creditors. Just be careful because there are a lot of crooks out there. To find out that you are working with a legitimate debt relief company, look for the credentials of the United States Organization for Alternatives to Bankruptcy or the Recovery management association. (Also, keep in mind that these companies usually charge a fee and may require that you already default on multiple loans before you intervene.)