Small businesses form the backbone of the United States economy. According to the Small Business Administration, 99.9% of businesses in the U.S. qualify as “small” (500 or fewer employees), and these employ 58.9 million people — or 47.5% of the private workforce.

Considering how vital small businesses are to our economy, it’s shocking to learn that 70% of small businesses will have failed by their 10th year. For 82% of business owners, that failure comes down to cash flow problems—basically, the amount of money that’s coming in versus the amount that’s going out. 

If you’re struggling with debt management and cash flow problems as an entrepreneur, you’re not alone. Though it can feel discouraging, there’s good news: with a few simple steps, you can get back on your feet, relieve some of your debt, and get back to providing the products or services that make your business so valuable to the community.


The Facts on Small Business Debt

Though out-of-control debt can certainly be damaging, debt isn’t a bad thing. For many business owners, loans are the only option for getting their business started, buying equipment and inventory, and managing expansions. Let’s take a closer look:

  • The majority of businesses use financing. Although some business owners may fund their ventures out of pocket, 69% of small firms use financing to reach their goals. As a quick breakdown, discovered that businesses use loans to invest in a new opportunity or expand (59%), cover operating expenses (43%), and refinance (26%).
  • Unsecured debt is commonly used. To fund their start-up enterprises, many small business owners seek unsecured business funding. Basically, this means that they take out loans that have no collateral (house, land, equipment) attached. Around half of small business owners have a business card, while 29% use credit cards to meet capital needs in their business. On average, small business owners have a monthly payment of $2,032.
  • Pros and cons of credit cards. Unsecured loans like credit cards are attractive to many entrepreneurs because they’re easier to get, take less time to receive than other loan types, and often have fewer restrictions. The downside is that credit card debt often has high interest rates.
  • Overall business debt in the United States. Though debt can seem overwhelming, it’s important to keep in mind that it’s very common. For example, the average business loan from a small bank is a whopping $150,000.


How Small Businesses Can Handle Credit Card Debt

Remember: If you have small business debt, you’re not alone. It’s a common situation for entrepreneurs, and there are plenty of ways to handle your credit card and other unsecured debt.

1. Assess your Debt

If you feel like your debt is getting out of hand, it’s important to calculate your debt-to-income (DTI) ratio and determine where you stand. This number can help you determine if your loans have gotten out of hand — so you can get started with a solution. Here’s how you calculate your DTI:

  • First, figure out the total of your monthly debt payments, including credit card debt and small business loans.
  • Then, determine your monthly gross income (amount before taxes)
  • Finally, divide the total amount of your debt payments by your monthly gross income to arrive at your DTI.

In most cases, you don’t want your DTI to exceed 36%. At levels higher than 36% you don’t have an adequate cash flow to manage your business in case of unforeseen circumstances. 

2. Change Spending Habits

Once you’ve determined that your DTI is too high for comfort, you will have to adjust accordingly. For example, if your debt is steadily increasing because you are consistently adding purchases to your business card, you might have to reassess your spending habits.

  • Is there anything in your budget that can be decreased or slashed?
  • Can you reorganize staffing so that you’re not paying employees to work during slow times?
  • Are you doing everything in your power to get wholesale prices for supplies?
  • Are there any opportunities to make your business more energy efficient to save on bills?

Like calculating your DTI, this step of the process requires you to take an honest look at your business’s spending habits. You might be pleasantly surprised to find that you can substantially decrease certain payments.

3. Increase Sales & Revenue

Increasing business revenue is one of the best ways to bring balance back to your debt-to-income balance. To do this, you might consider:

  • Exposure. Get your product in front of more (interested) customers through re-structuring your marketing and advertising campaigns.
  • Raise prices. When you first started, your low prices might have been set to attract new customers. However, in many cases you might have to raise prices — even if incrementally — to increase your revenue.
  • Sales tactics. If you’re not reaching your sales goals, is it because you’re not targeting the correct demographics for your products or services? Is it because your sales team is losing valuable opportunities to up-sell and cross-sell? Reassess your sales strategy toward greater profit.
  • Focus on customers. Marketing is important, but it’s also key to emphasize your relationships with your customers. Can you start a referrals program? Start a rewards program to keep customers interested?

4. Consider Debt Settlement

In some cases, you might want to consider debt settlement as an option. If your debts are creating an impediment to your success, consider partnering with a company that helps you gain control. Generally recommended for those who have $10,000 or more in unsecured debt (such as credit card debt), negotiators will work toward negotiating your overall balance.

Throughout the process, they’ll negotiate the amount of the loan with your credit card provider, handling every step of the process towards lowering your financial load. Meanwhile, you’ll be able to get back to what matters — building your customer relationships, streamlining your expenses, and improving your small business every day.


Relieve Your Small Business Debt Today

“There is scarcely anything that drags a person down like debt.”–P.T. Barnum

For many small business owners, uncontrollable debt can prove a huge obstacle to a successful business. It can throw off the important balance of cash flow in your business and leave you floundering for control. But debt doesn’t have to stop you from achieving your business goals. If you’re interested in learning more about how debt settlement can help, please contact us today.