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Managing Business Debt: Strategies for Debt Reduction

Are you struggling to pay down your business’s debt? Debt isn’t limited to consumers.  According to Statista, nearly three-fourths of small- and mid-sized businesses in the United States have at least some debt. When left unchecked, debt can disrupt your business’s operations. There are ways to reduce your business’s debt, however, including the following strategies.

Consolidate

Consolidation is a debt reduction strategy. As the name suggests, it involves consolidating or “combining” multiple debts into a single debt. If you have three business loans, for instance, you can consolidate them into a single business loan. With consolidation, the goal is to achieve a lower interest rate. You can apply for a new, low-interest loan. Assuming you get approved for it, you can then use that new loan to pay off the three existing business loans.

Equity Financing

One of the challenges businesses face when trying to pay down their debt is financing. If you’re trying to pay down your business’s debt, you may want to avoid opening new credit cards, lines of credit, loans or other forms of debt, in which case your business will be left without financing. But there’s an alternative form of financing available: equity financing. Equity financing involves the sale of ownership to an investor or group of investors. You can use it to raise capital for business without taking on new debt.

Optimize Cash Flow

Another strategy for reducing your business’s debt is cash flow optimization. Cash flow represents the money entering your business and the money leaving your business. Research shows that businesses can reduce their outstanding debt by an average of 20% with cash flow optimization. Cash flow optimization is all about increasing your business’s incoming cash and decreasing its outgoing cash.

Negotiate With Creditors

You may be able to pay down your business’s debt more quickly by negotiating with creditors. Once the debt structure is assessed, reach out to your business’s creditors to see if they are willing to work with you. You can ask them for better terms and conditions to alleviate your business’s debt burden. In many cases, creditors are open to discussions and may be willing to restructure debt. Some creditors may even offer to lower your business’s interest rates or extend repayment periods, thus helping your business achieve financial stability.

Have anything else that you’d like to add? Let us know in the comments section below!

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