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Friday, March 01 2024

An entrepreneur’s guide to reducing small business debt

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Studies show how year after year, start-ups fail due to bad business decisions and poor strategies. There are many other mistakes small business owners make, especially when they start out. One significant of them is to allow debts to accumulate over time. It hampers growth and long-term business strategies.

However, reducing small business debts is not impossible as there is always the opportunity to avail a start-up loan. Here are some other ways entrepreneurs can reduce outstanding payments.

Ways to reduce small business debt

Here are some strategies an entrepreneur can follow:

  1. Cut down on unnecessary expenses: The first step to reducing business debt is to ensure that there are no unwanted expenses. All businesses have scope for cost-cutting. From re-allocating budgets to reducing overheads, entrepreneurs can always reduce their spending. They can also look for vendors who charge lower than what existing ones do. Budgetary cuts may be painful, but they are necessary.
  2. Take care of personal finances carefully: As an entrepreneur, your business is the main contributor to your personal financial lifeline. At times, when a business runs well, you may end up spending a lot more money on unnecessary items which can later turn out to be a mistake. Many successful entrepreneurs set a fixed salary for themselves; it is a smart way to prepare your business for its growth phase by setting aside a reserve.
  3. Try to consolidate your debts: There are few entrepreneurs who rely on multiple credit lines which ultimately increases their total interest payable. Consolidating all such business debts into one using an SME finance can help reduce this cash outflow. Some of the prime advantages include:
  • Improvement of your credit score since your outstanding debts reduce.
  • Elimination of the need to make several payments to multiple companies as a single payment settles all your dues.
  •  Power to negotiate and get comparatively lower SME loan interest rate when your credit score is higher than average.

4. Arrange for a small business loan: A small business loan is one of the best ways for entrepreneurs to reduce their enterprise’s debts. With the Indian economy growing by more than 6% every year, a lot of new entrepreneurs are entering the scene. That has led many financial institutions including NBFCs to offer exclusive small business loans.  Such loans have a lot of advantages. Two of the most important ones are:

  • As these unsecured loans come with zero restriction on their end usage, you can easily finance various strategic expenses in your business. Once the growth phase starts, you can then repay over a flexible tenor in easy EMIs.
  • Some businesses, like woolen manufacturing, for example, have a lean period. In these seasons, sales are slow, and revenues are low. Business finance helps to overcome such times until sales reach a respectable level once again. 

Ensure that you meet all the SME loan eligibility criteria before you apply for one.

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Nishant Vivek

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