8 Solutions for Small Business Debt Management.

 


Introduction.

Small businesses work on tiny profit margins. So, any challenges that arise can get them into debt. I designed this article to give some advice to any small business showing how to identify and manage debt. The sooner you recognize the problem then the foster you can act.

1. Signs of Financial Trouble.

There are signs that show you that your business is getting into trouble. Here is a list of some potential signs that will alert you that you are getting into trouble.

Ø Making only the minimum payment required
Ø Using one credit card or credit line to pay off another
Ø Frequently paying bills after they’re due
Ø Skipping payments on some bills in order to pay others
Ø Using a credit card as a source of financing, rather than a convenience
Ø Exceeding borrowing limits on your credit cards, overdraft, or line of credit
Ø Using cash advances on one credit card to pay off another
Ø No money left by payday
Ø Asking your friends or family for loans
Ø Receiving calls from creditors or a collection agency
Ø Feeling stressed and anxious about your financial situation
Ø Having your telephone, electricity or other utilities cut off

If you are facing any of these warning signs. You could try to solve the challenges yourself. If you know something about accounting, it is possible. But it may become impossible for you to cope, so then you need professional advice to have all your debt relief options explained to you.

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Take the Wealth Test in Appendix 1 to see how much you need help.

2. Types of Debt.

There are many types of debt, here is a list of potential debt problems your business may have.

a. Credit card debt.

If you find you’re frequently paying your credit card bills after they’re due. Or regularly making only the minimum payments or if you’re relying on credit cards as a source of financing. You need to look at filing a consumer proposal to consolidate your unsecured debt. This would then leave you with more money for savings.

b. Income tax debt

If you owe money to your IRS, then you might be eligible to enter into an agreement with them to make a payment arrangement, which would allow you to make smaller payments to them over time until you have paid your entire debt.

To learn more about this process, visit the local office of your IRS or use the On-line service.
In my experience if you have been regular and up to date in your tax returns, they will help.
If you don’t pay your taxes, depending on your case, the IRS can take several measures against you including a wage garnishment, seizing your bank accounts, registering on your home and seizing or selling your other assets.

N.B. In this challenging time with COVID-19, there may be a delay in agreeing.

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c. Mortgage Debt

Mortgage Debt is a secured loan, not like a credit card which is unsecured so the negotiations must be with your mortgage holder.
If you are having difficulty making ends meet, you can only ask your lender for relief. Most lenders are ready to help in the current circumstances, so approach them as soon as possible. NEVER stop paying or you risk losing your asset, be it home or business premises.

3. Credit consolidation loans

Through a credit consolidation, you can lower your monthly payments by making one payment to your bank at a lowered interest rate. Instead of making multiple payments. Make sure that the interest rate on your consolidated loan is lower than your other debts. If you don’t qualify for a credit consolidation loan, contact a Licensed Insolvency Trustees who will take the time to explain all of your debt relief options so you can choose the best course of action for paying off your debts.

You may qualify for a consolidation loan if you have a job or a source of income. This will allow you to repay it. Qualifying for a consolidation loan might not be possible for everybody. A bank will account for your total debt load, percentage of credit used, and history of making minimum payments and depending on how you rank in these categories, your credit score may already be impaired, which would prevent you from qualifying.

With a credit consolidation loan, you pay the bank at a lowered interest rate.

4. Credit counselling agencies

When looking for a credit counselling agency make sure they are certified. Because they don’t have to be. You will see the “credit counsellor” and “debt management consultant”. These are generic terms, and, in some states, anyone can use these titles.

So, make sure that when you are visiting a credit counselling agency. That it is affiliated with a national and/or provincial professional association. When meeting with a counsellor or consultant, confirm his or her qualifications and memberships in professional bodies. Also receive a proposal of how you will be helped in writing, along with a monthly statement of payments.

A not-for-profit credit counselling agency. Helps you organize your debt through a debt management plan, and they offer educational workshops for improving your finances. They are often certified, but as mentioned above, they don’t have to be, so check their credentials when you are visiting them for a consultation.

A debt settlement company operates with an original business model. They are often not recognized by creditors or debt collectors as legitimate. And will often not negotiate with them. This is important to keep in mind if you decide to follow a debt settlement plan. If you are considering using a debt settlement company, make sure you clearly understand the services they will provide you, and ask for a written contract or statement.

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My Problem.

Many years ago. I had a business problem and landed in debt. I used a debt settlement company, and it cost me dear. After 3 years I discovered that they were only taking their fees and not paying any of my debt. It took me 3 More years to get settled and I had to pay 60% of the debt to get it cleared.

5. Alternative Lenders.

Some other areas to look at for finance is in such as crowdfunding platforms and marketplace lenders. If you are too aware these are different from traditional lenders.

These firms rely on technology that allows them to assess the creditworthiness of borrowers through alternative data. They also use electronic platforms to process requests, which means their services are more accessible and faster.

This means that they can help distribute relief funds, provide small-business finance, and offer other digital business services, such as e-invoicing or cloud accounting.

Alternative lenders serve micro and small businesses, who have limited cash buffers. Any drop in their earnings quickly affects the repayment of loans. There are reports that show a growing number of small businesses are now requesting payment holidays or restructurings. This causes lenders to curb new lending, increasing interest rates. This leads to cost-cutting, including furloughing of employees.

Because of this it has reduced investor appetite for lending to small businesses through alternative-lending platforms. Some investors are trying to sell their existing investments.

Unlike commercial banks, alternative lenders do not have access to retail deposits. As investors reduce their exposure during the crisis, alternative lenders are facing difficulties in obtaining funds to continue lending to small businesses.

This lessening of the alternative lending sector means that many will stop lending. This loss of newer, innovative financial services providers just when more digital financial services are needed.

6. Consolidation Orders and Voluntary Deposits

Depending where you live you may go to your local courthouse to register for a consolidation order.
The court will combine your debts into one. And determine the amount that you must pay them every month. The court then distributes the payments on your behalf to your creditors.
So, there are several ways of settling your debts just to be careful of which method you choose and who you select to help you.

7. Debt Management Tools

Not all debt situations require professional intervention. These online tools can help you reduce debt by determining your financial health. Calculating credit card debt and creating a budget to help you track savings and spending. We also have a financial literacy quiz that can help everyone determine their level of financial knowledge, which can help you manage your finances. See Appendix. I have used none of these tools so I cannot endorse any of them, we provide them for you to explore and make your own decisions.

The Best Free Debt Reduction Spreadsheets in 2020

This spreadsheet includes additional information about those strategies. With more resources for reducing debt. After you enter your information, select the unique methods to see how each would work for paying off your debt. This spreadsheet includes a printable payment schedule for easy reference.

Debt Reduction Calculator | Debt Snowball Calculator

  • How fast can I get out of debt?
  • How much can I save in interest payments?

That is what this Debt Reduction Calculator can help you figure out. Getting out of debt is difficult, but with an excellent plan and firm determination, it is entirely possible. The debt snowball calculator is a simple spreadsheet available for Microsoft Excel® and Google Sheets that helps you come up with a plan.

8. Budget Calculators

Free Budget Calculator | Quicken

For personal finance. It’s best not to play the guessing game. Sometimes the easiest way to manage your monthly budget is to visualize it. With Quickens budget calculator, it’s easier than ever to manage your finances.

 

Budget Calculator

Detailed free budget calculator. This will help you to plan your Personal finances. Including Debt-to-Income (DTI) ratio and expense breakdown. Also, download our free budget template, learn more about budgeting, experiment with other personal finance calculators, or explore hundreds of calculators covering math, fitness, health, and more.

Repayment Calculator

Repayment Calculator. You can use the Repayment Calculator for loans in which a fixed amount is paid back, such as mortgages, auto loans, student loans, and small business loans.

Act sooner rather than later.

Debt is a nasty situation and many people try to ignore it hoping it will go away, it won’t.

The longer you delay taking action, the more difficult it will be to get out of your debt.

Debt is an insidious thing it gradually seeps into your entire life, your work, your family, and your friend’s relationships are changed.

So please act, identify your situation, see if you can get out of it yourself and if you can’t get professional help.

If you need any help or advice please contact me:

support@alronbusinessservices.com

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Appendix.

Financial Health

Taking control of your financial situation will help you reduce stress. Strengthen your family relationships and improve your mental and physical well-being. This financial health test can help assess your current financial status.

Financial Quiz

Having strong financial literacy can help prevent debt problems. Take the quiz to find out how well you understand certain financial concepts.

Do you use your credit cards more and more?
o Yes
o No

· Are you constantly exceeding your limit? *
o Yes
o No

· Are you feeling your spending may be out of control and you’re unable to manage your finances? *
o Yes
o No

· Are you worried and depressed about money and is this affecting your health, your job and your personal relationships? *
o Yes
o No

· Do you borrow from family and friends to help you make it to the next pay day? *
o Yes
o No

· Do you avoid opening your bills or you only open one or two and ignore the rest? *
o Yes
o No

· Are you afraid to answer your phone because you think the call could be from a collection agency? *
o Yes
o No

· Have you tried to get a loan or to refinance your mortgage and been declined? *
o Yes
o No

· Have you consolidated your debts but cannot keep up the payments or does the lender want the loan paid off or is asking you for a co-signer? *
o Yes
o No

· Have you had a garnishee placed against your wages or are you being sued by a creditor? *
o Yes
o No

The more yes answers the more critical is your situation. So, get professional help.

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