How to Pay Off Business Debt and Get Back on Your Feet

5 min read • Aug 30, 2021 • Jesse Sumrak

The last 18 months have been long and difficult. Businesses have desperately struggled to stay afloat, while many have unfortunately had to close their doors permanently. However, the battle is far from over—for those businesses that are still alive and kicking, many are swimming in uncomfortable levels of debt.

US businesses are now facing record-high levels of debt. The Paycheck Protection Program (PPP) provided much-needed relief, but most companies have already received and spent their funds. Now, they’re left picking up the pieces and still making payments on loans they likely received before the pandemic even started.

Yet, there’s hope. You can pay off your business debt and get back on your feet. Of course, it’ll require a bit of work and some time, but you’ve been through worse—much worse. Below, we’ll show you 6 ways you can pay off your debts and reclaim control over your financial situation.

6 Ways to Pay Off Business Debt

1. Make a Plan

It’s hard to get out of debt when you’re constantly playing catch up. Get ahead of your finances with a game plan. Create a budget to help you see where all your money is going.

Make your debts your priority. Then, start seeing where everything fits in your cash flow. Start with the most essential business items first. With a brand-new budget and reprioritization, you may find that you have enough cash flow to take care of your business debt payments.

If you crunch and re-crunch the numbers and can’t make them work, don’t panic. We have other ways to boost your cash flow.

2. Reduce Spending

Look at your budget and your cash flow statement to find nonessential expenses. If you have costs that aren’t absolutely necessary, cut them from your expenses. Start with the small things, like:

  • Parking spot subscriptions
  • Expensive unused software licenses
  • Heating and cooling on the weekends
  • Extravagant company parties
  • Catered meals and fancy snacks

If cutting smaller expenses doesn’t make a big enough dent, start looking at your larger costs: rent and payroll. Do you need an office? If not, end your lease as soon as possible to recoup a sizable amount each month.

Instead of hiring new employees, can you hire contract workers? These workers don’t require expensive benefits or overhead—plus, you can always cut back on work if your cash flow gets tight. 

3. Increase Sales

If you run out of expenses to cut from your budget, start looking at ways to boost your revenue. Extra money each month will help cover your debt payments and keep your business moving in the right direction.

Look at your marketing programs to identify the winners and the losers. If a campaign is underperforming, cut your spending and reallocate it to a channel with a higher ROI. For example, if you’re struggling to win customers on Facebook, but your YouTube ads are thriving, push that Facebook budget over to YouTube—even if that means temporarily stopping your Facebook investment.

Take a look at your inventory. If you have old products taking up room on the shelves, sell these items as quickly as possible. You might need to put them on sale or include them as add-on purchases to your big-ticket items. The sooner you can clear them out of your warehouse, the sooner you’ll free up valuable space and money wasted on storage.

Consider raising your prices. You’ll want to remain competitive, but explore how a price hike could impact your revenue. Imagine what a 10% price increase could do for your bottom line. If you’re in an industry like retail, you’ll notice the financial gains while it’s unlikely your customers ever will.

4. Secure Financing

While it’s not a good strategy to fight debt with debt, some forms of financing can help you out of a tricky situation. 

Sometimes money today is more valuable than money tomorrow. Specific forms of financing can give your working capital a much-needed boost, giving you breathing room to take care of your expenses while paying off your debts.

If you’re desperate for cash now, a merchant cash advance lets you trade tomorrow’s earnings for money today. It’s not cheap financing, but it can help you get out of a bind if your cash flow is hurting.

Another financing alternative is accounts receivable financing. Accounts receivable financing (also known as factoring) lets you liquidate your IOUs. If you’re waiting on customers to make their payments while your debts stack up, use factoring to accelerate your cash flow turnover.

Look at your other financial assets. For example, do you have a business credit card or line of credit you can use? Allocate those credit lines strategically in your budget to ensure you can use them responsibly while also paying them off before they accrue interest.

Talk to your lender about refinancing your existing debts. You might be able to secure a lower interest rate or extend your terms to reduce your monthly payment.

5. Save Less

It’s critical to save for a rainy day, but it’s more important to get out of deep water first. You’ll need to find the delicate balance between paying off your debts and saving cash.

Your debts’ interest rates are likely a lot higher than your savings account’s rate. You’ll save money in the long run by paying off your debts sooner.

However, don’t completely neglect your cash cushion. You’ll still want to make investments toward your savings to prevent an emergency from shutting down your business.

6. Automate Payments

Make your debt payments first. Don’t wait to buy this and that—it’s easy to get distracted. To avoid budgeting mistakes, automate your payments. This will take one more thing off your plate and ensure your business is taking care of the essential expenses first.

Reclaim Financial Control

Debt can be debilitating, but don’t let it slow your business down. Remember, debt isn’t a bad thing (far from it). You don’t necessarily need to get out of debt—you just need to control it.

Start taking steps to eliminate your financial obligations and take control of your business. You might only need to make 1 or 2 changes, or you might need to make all 6—give them a try and see what happens.

Jesse Sumrak

Jesse Sumrak is a Social Media Manager for SendGrid, a leading digital communication platform. He's created and managed content for startups, growth-stage companies, and publicly-traded businesses. Jesse has spent almost a decade writing about small business and entrepreneurship topics, having built and sold his own post-apocalyptic fitness bootstrapped startup. When he's not dabbling in digital marketing, you'll find him ultrarunning in the Rocky Mountains of Colorado. Jesse studied Public Relations at Brigham Young University.