How to Handle Business Debt in 2021
Are you a business owner who has been struggling due to the pandemic? You’re not alone. In fact, many Canadians are struggling to keep their businesses afloat as the economy slowly resumes and things get back to normal. If you’re wondering how you’re going to deal with your business debt in 2021, keep reading. Find out more about what business debt is and what you can do to get out of it – and still save your business!
What is Business Debt?
In order to keep running, businesses incur debt – especially in the early days. The pandemic has forced once-thriving businesses into debt by preventing them from earning their usual wages. With sales either down or non-existent, some small business owners are finding themselves faced with the possibility of closing up shop and losing everything. Business debt refers to any credit card, lines of credit, or business loans that have piled up so high, business owners are at a loss for how to pay them back.
There are also two kinds of business debt: good business debt and bad business debt. Good business debt would be a government loan for small business with a low-interest rate, or debt to pay off the mortgage on your business property. These debts are essential to keeping your business running and are actually not bad debts to have. However, bad debt is a big problem. The pandemic has forced lots of businesses to get bogged down in bad debt. What is bad business debt? Bad business debt is debt on credit cards or credit lines that you can’t actually pay off – especially not at those interest rates!
Business debt can be the end of the road for some people, but not for everyone. There are still options at your disposal to help you manage your business debt and keep your business running long enough to keep it running once this pandemic is long gone.
What is a Healthy Business Debt?
All businesses have some debt. In fact, debt, especially early on, is really the only way to get a business off the ground. There isn’t an amount that is considered healthy. This can really vary from business to business. A healthy debt is debt that is essential to keeping your business going, comes at a reasonable interest rate, and can be paid off in the foreseeable future. A good rule of thumb to keep in mind is that your business debt should not exceed more than 30% of your capital.
Unhealthy business debt refers to debts that will tank your business because you simply cannot afford them. If you can’t see a way out of your business debt even during the best of times. You are likely in a bad cycle of debt that won’t be easy to get out of. If you are unsure if your business debt is healthy, you should consider it. Meeting with a business loan expert sooner rather than later. They can help you understand your debt and find you solutions to maximize your business potential while repaying your debt. Don’t wait until your business is on the verge of collapse before seeking help.
Is Business Debt Good?
In some cases, business debt is actually a good thing. In fact, business debt can be beneficial to your business and to you, just as long as the debt remains within reason. Here are a few reasons why business debt isn’t all that bad at all.
Debt is Cheaper than Equity
If you are trying to grow your business through your equity, it can be a very long process. If you borrow money for your business to grow, the low value of the interest on the loan can actually help you grow faster. In this situation, business debt is a good thing. It allows the business to continue growing at a quicker rate and can actually bring in way more money in the long run.
If you turn to equity to expand your business. Then run into unexpected expenses, you will find yourself at a loss for borrowing money. Instead, if you take on some debt to grow your business. Leave your equity alone, you can rely on it should you hit hard times – especially unexpectedly. You will max yourself out by using your equity to grow your business.
Debt Can Help You Build Credit
If you are a new business owner, you may have no track record yet. It is important to help yourself build a solid credit report for your business. This can help you when you need to borrow more money down the line or get credit from suppliers. Taking out a reasonable debt that you can afford to pay back will build your credit score. This is proof that you can pay your debts off to suppliers while you run your business.
Business Debt Reduces Personal Risk
If you put your life savings into your business and it fails, you will have lost everything you have worked for. It may even be impossible to rebuild it. To minimize the risk to your personal finances, you can and should take out a business loan instead. The loan can help you get your business off the ground. If the business fails, your home and your other personal assets will not be at risk. Your business can file for bankruptcy and you won’t lose everything you have worked so hard to achieve.
Interest is Tax Deductible
If you are taking out a loan to start or run your business. Keep in mind that the interest you are being charged is tax-deductible. This can lower your company’s revenue on paper. Minimize your tax payments at the end of every fiscal year when you file your income taxes. This tax relief can be very useful when you’re focusing on growing your business from the ground up.
In short, debt isn’t always bad. It can sometimes be very helpful. Debt is only problematic when the debt load surpasses what the borrower can afford to pay back. Debt can spiral out of control easily so it’s important to keep tabs on your debt. Even good debt – and follow a strict budget to make sure you don’t wind up in any financial trouble.
READ MORE ABOUT : 10 Personal Loan Myths – Debunked!
What is Bad Business Debt?
Bad business debt can be detrimental to the success of your business. In fact, if it gets out of hand, it can cause your business to shut down and declare bankruptcy. Bad business debt is debt that you cannot afford to pay back. If your business debts exceed 20% of your capital, your business will be at risk. It means you will not be able to borrow more down the line and you may start to default on your payments. If this happens, you will run into major issues with suppliers and find yourself unable to continue running your business.
If your business goes bankrupt, all the money you have put in – not to mention the time and effort – will be lost. You have personal debts on your business, then your personal finances will also be affected. In addition to the loss of income, the failure of your business can lead to many other unpleasant consequences. You may not be able to secure a loan for a future business prospect or for your personal needs.
How to Take on Smart Business Debt
If you’re considering starting up your own business, you will need to start by taking out a small business loan to get your business going. To ensure you take out the right amount of money that you will need without taking on too much debt from the get-go, you can and should meet with a small business loans expert. They can help you understand your business loan options, how they will affect your finances, how they can help your business grow, and how you can reasonably pay the loan back.
The key to managing business debt is to understand how business debt can work in your favour and how to make sure you don’t acquire bad business debt along the way. The experts at BHM Financial can help you understand more about how business debt works and what advantage there are in it for you. If this is the first time you start your own business, you may be uneasy since you aren’t informed yet. Our expert team will guide you through the small business loans process and help you get started.
You can apply for a small business loan of up to $15,000 on our website and get same-day approval. Our small business loans can be used to help you pay off start-up costs, cover expenses, or allow you to purchase more inventory to grow your business quickly. Plus, we also offer business consultation services. Our expert team can help you better understand the steps of starting and running your own business and help guide you down the path to success.
Can I Get a Business Loan with Bad Credit?
At BHM Financial, we don’t even base our decision to loan you money on your credit score. In fact, we don’t take you age or credit history into account at all. We base our decision on your current income. In the case of a business loan, you can still get one with bad credit as long as you can provide some collateral.
You can leverage the value of your car, boat, or mobile home, or the equity in your property to borrow the funds you need to get your business going. We can help you find a way to get the most out of your assets so you can secure a loan to get your business started or to help you keep it running smoothly. We can loan you up to $15,000 to cover essential costs and keep your business afloat during rocky times – like a global pandemic, for example!
At BHM Financial, we don’t ever base our decision to loan you money on your credit score or credit history. If you have bad credit, most banking institutions will refuse you, but not us. We understand the ups and downs of running a business and can help you through the toughest times. You can apply for a small business loan online and receive your cash the same day. We approve all of our loan requests ourselves and hand out the funds directly.
Can I Get a Business Loan if I Have a Mortgage?
If you have a mortgage, especially if it is a large one, many traditional banking institutions will likely refuse you. Too much personal debt can stand in the way. At BHM Financial, you may still be able to qualify for a business loan even if you have a lot of personal debt. In fact, you can always meet with one of our financial experts and find out how you can properly manage your debts so you can get access to the loan products you need. Our financial experts can help you find the right loan for your needs and work out a feasible repayment plan that suits your lifestyle.
How to Manage Business Debt
To properly manage your business debt, you want to pay it off steadily and still be able to keep your business running while you pay off your debt. Here are some tips to help you manage your business debt properly this year:
Make a Budget
Anytime it comes to managing finances – whether it’s personal or financial – you need a budget. This is what keeps you on course and ensures you don’t overspend or mismanage your finances. The first step to paying down your business debt is building a repayment plan that makes sense. If you make an overly aggressive plan, you’re likely to fall off the wagon and fail. If you underpay, you’ll be paying way too much in interest. If you’re unsure how to manage your debt best, meet with a financial loan expert and decide together on what is a reasonable repayment solution for you.
Pay Your Debt Daily
With BHM Financial, you have the option of choosing a daily repayment or monthly. If monthly repayment makes for very large payments and you’re worried about keeping up, it’s best to make daily payments. The payments will be less noticeable when they go out every day. Plus – and this is the best part – you’ll be reducing your interest by the day. The more capital you pay, the less interest you are paying. Anything you can do to cut down on interest is better for your business.
Choose the Right Amortization Period
If your business doesn’t generate enough income today to get you out of debt in 10 years, don’t choose a 10-year amortization plan. You have to choose something that makes sense so you can actually achieve your goal and avoid incurring more debt along the way. If your business starts bringing in more money down the line, you can always renegotiate your terms. But in the beginning, when things are most uncertain, don’t commit to a plan you can’t keep up with. That will just get you on the fast track to bankruptcy.
Hire a Bookkeeper
If you don’t have the financial savviness to manage your debts properly. It’s worth it to invest in a bookkeeper who helps you manage your debts and loans properly. Debt management is key to running your business well. Hiring someone with the experience to manage your company’s finances, taxes, and debts can help you save money in the long run. A qualified bookkeeper can also help you with a budget. We provide you with regular statements so you can better understand your company’s finances.
How Can I Get a Business Loan Quickly?
If you’re looking to get a business loan to start your business, purchase new equipment. Keep your business running during a rocky period, you can apply on our website today. As a direct lender, we can review and approve all loan applications ourselves. This means we can assess and approve your loan request quickly. In fact, you can get the cash you need in your hands on the same business day.
Not sure if you qualify for a business loan? Start by meeting with one of our financial experts for a consultation. They can help you understand our business loan products and help you find the one that is right for you. They can also explain how our loan products work and how repayment works. Our goal is to help you get a hold of your finances on your own so your business can flourish.
Call BHM Financial Today
If you are in need of a small business loan or are simply looking for some advice on how to manage your finances or help your business move forward, call us today. Our financial experts can help you make sure your business – your dream – turns into a great success. With the right help and the right financial advice, you can achieve financial success through your business sooner than you think.