10 Steps for Small Business Owners to Manage Debt Stress

Owning a successful business comes with rewards and challenges, and growing that business usually means taking on some business debt. Whether it’s your first time managing debt or you’ve accepted numerous loans in the past, there’s a level of stress that comes with paying back borrowed funds. The good news is that there are effective ways to get a handle on that debt stress.

Here, we look at what debt stress is, how to recognize whether it’s impacting you and your business, and realistic and actionable steps to manage it effectively and reduce it for good.

Debt stress: Typical sources for small businesses

Debt stress is the pressure that results when business debt feels overwhelming. As with personal debt, the feeling (or reality) that you can’t get ahead of business debt can take a toll, physically and emotionally. A key difference, though, is that the negative impacts of business debt stress can ripple throughout your entire business, leading to a spiral of challenges for your business and your employees.

The reasons behind debt stress vary and it’s important to identify the sources of yours to devise the best plan to move forward. The reasons can include, but aren’t limited to:

  • Several sources of debt that suddenly become too much to handle.
  • Extended revenue reductions and/or increases in expenses that you’re too-often covering through loans and lines of credit.
  • A predatory loan with unreasonable terms that make it difficult to pay off.

Know this: There are proactive steps you can take to significantly reduce debt stress and you’re not alone in this struggle. As reported by Forbes, anywhere from 60-85% of small business owners report financial challenges.

Recognize when debt stress may be impacting you and your business

Just about every small business owner experiences a sleepless night (or several) when they have financial management challenges. The key is to recognize when these challenges are taking too much of a toll on your physical and emotional health.

Debt stress may be overwhelming you if:

  • Anxiety or depression about it prevents your business from moving forward. No small business owner gets through the day without some anxiety, but if minor decisions feel overwhelming, debt stress may be getting the best of you.
  • You trudge through each day exhausted because debt stress keeps you up at night. Lack of sleep leads to a whole host of emotional and physical issues that can lead to bad decisions, accidents, inappropriate behaviors, and more.
  • You have a growing sense of shame or embarrassment over your business’s debt situation or perception of failure. It’s taking a toll on your confidence, your work and personal relationships, and your ability to think clearly and optimistically.

If any of the above sounds familiar, there are steps you can take now to lighten your mental and emotional load.

10 steps to manage debt stress

While debt and stress are realities of business ownership, debt stress doesn’t have to be. Here’s your 10-point plan for coping with debt stress – and even eliminating it entirely:

  1. Assess your situation: Are you having a few bad financial days or weeks, or is debt stress becoming a pervasive issue? If it’s an ongoing issue, then it’s time to take action and start digging into the source.
  2. Identify the underlying sources of your debt stress. Start asking yourself some questions to get to the root of it. Is it a single bad loan? Do you have too many business debts? Are you worried that if you have a low-revenue cycle, you’ll fall into further debt? Does your business have sufficient revenue, but repayment has gotten away from you? Whatever the situation, there’s a resolution and you can now start reviewing your options.
  3. Explore ways to responsibly alleviate your debt stress. If you have a loan with unreasonable terms, for example, then refinancing your loan is a great option. If you have too many outstanding bills and you’re scrambling to make payments, then consolidating your debt into a single loan could be the answer. If you have sufficient revenue but aren’t organized around your finances, something as simple as better bookkeeping software can automate your business’s accounts payable and accounts receivable functions. Think about what will help you literally, and figuratively, sleep better at night related to your debt and work on putting that into place.
  4. Research viable options. Sometimes, a new debt is the answer to your troubles. In those cases, you’ll need to look into loans with reasonable repayment terms and lenders who understand the challenges of small business ownership. The SBA’s Lender Match Tool is a great place to start for reputable lenders who offer SBA and other loans tailored to meet the needs of small businesses. You should also meet with your commercial bank to find out options that may be available.
  5. Seek professional advice. Your accountant can confirm the options that will best resolve your immediate issues. If, however, your situation is going beyond your control – for example, your business’s assets are at risk – then you may want to speak with an attorney. They can help prevent further damage while you seek to resolve your challenges.
  6. Apply for the right type of financing to support your business. Often, debt stress causes business owners to jump at loans that seem too good to be true. In most cases they are! If a lender offers low- or no-minimum credit scores, no collateral requirements, quick applications, and fast approvals, take caution. It could be a predatory lender who will give you more debt stress in the long run. Take a deep breath, find the right lender and the right loan, and be sure you understand the terms completely.
  7. Leverage the expertise of business-support organizations. Look to your local Small Business Development Center (SBDC), SCORE, or Chamber of Commerce for guidance. You won’t be the first small business owner to contact them for support with your debt stress, nor will you be the last. They offer low- and no-cost resources and insights from an array of professionals. From business mentors who can work with you to strengthen business operations to financial-management experts who can help you increase profitability, you’ll find support for nearly any need.
  8. Analyze what got you into a debt-stress situation. Once you’ve addressed the immediate situation, it’s time to reflect. Knowledge is the key to preventing future issues, but the causes are as different as businesses themselves. Work through the root causes and set a goal to improve your cash-flow management for the future. Having a handle on your cash flow with ensure you have enough to pay toward debts and build a reserve.
  9. Create a business budget. This will give you a financial plan to strengthen and grow your business, while mitigating the issues that crept in and caused your debt stress.
  10. Enjoy the challenges of owning and growing your own business again! You now know what it takes to build revenue, reduce expenses, improve profitability. Step by step, you’re learning how to be a better business owner. That’s reason to celebrate!

Pursuit has financing, resources, and support for success

At Pursuit, it’s our mission to provide small businesses with affordable loans and business resources that support your success at every step. We offer more than 15 business loan options   and a line of credit for businesses in Connecticut, Illinois, New Jersey, New York and Pennsylvania. If your business is located in our service area, contact us today to learn more about how we can work together to reach your goals. We hope you find the information you need to resolve debt stress and grow your business with confidence!

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