After more than a year of navigating lockdowns, mandates and COVID-19 protocols, small-business owners are starting to see a light at the end of the tunnel. But the debt many needed to take on to weather the pandemic still casts an ominous shadow.
In 2020, 79% of small employer firms (up to 499 employees) reported having outstanding debt, up from 71% in 2019, according to a February 2021 report by the Federal Reserve Banks. Of the firms that applied for financing, 58% said they did so to cover operating expenses like rent and payroll, compared with 43% in 2019.
Paying down this pandemic debt can help business owners rebuild their companies. The following tips can help you eliminate your business debt faster, while saving money on costly interest in the process.
1. Creat a debt repayment timeline
Being strategic about your debt will help you pay it off more quickly, says Chris Woods, founder of LifePoint Financial Group, a financial planning firm in Alexandria, Virginia.
Take a full accounting of what you owe, including interest rates and repayment terms for any business loans or credit card debt you’ve accumulated. Note grace periods, deadlines and action items, such as applying for forgiveness if you received a Paycheck Protection Program loan.
Then, set a reasonable (read: achievable) timeline to pay off your debts and start picking them off one by one. If you’re juggling multiple loans or credit cards, funnel any extra payments to the debt with the highest interest rate, says Zach Reece, owner and chief operating officer of Colony Roofers in Atlanta.
2. Find opportunities to cut expenses, increase revenue
There are two ways to find more money: Trim your budget or boost your income.
To jumpstart your revenue, reexamine your business model and look for opportunities to reach more customers or expand your sales footprint. You can also take steps to front-load your cash flow. Renegotiate contracts to request payment upfront or offer incentives to customers who can pay six or 12 months in advance.
3. Consider refinancing, consolidating
Make your debt less expensive by refinancing. Depending on your loan and business history, you may be able to access a better rate, a lower monthly payment or more favorable repayment terms. The same applies for any business credit card debt you accrued, Woods says.
Juggling multiple loans? Consolidate them into a single small-business loan, preferably with a lower interest rate and monthly payment. An added bonus: You’ll have just one payment to one lender.
4. Tap into free business resources
Connect with your local Small Business Development Center or Community Development Corporation. You can also link up with a mentor through SCORE, a volunteer organization that offers free business mentorship.
These organizations keep tabs on developments — such as the many changes to PPP loans and rules — and send emails with tips, important deadlines and updates, freeing you up to focus on your business.
Kelsey Sheehy is a writer at NerdWallet. Email: email@example.com. Twitter: @kelseylsheehy.