Take steps to pay down debts on shaky business now

Your Business Credit columnist Elaine Pofeldt
Elaine Pofeldt is a journalist whose articles on entrepreneurship and careers have appeared in Fortune, Working Mother, Money and many other publications. She is a former senior editor at Fortune Small Business magazine and an entrepreneur herself, as co-founder of 200kfreelancer.com, a website for independent professionals. She writes "Your Business Credit," a weekly column about small business and credit, for CreditCards.com.

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Question Dear Your Business Credit,
I opened up a business last year with partner. I own 50 percent. I have used my savings and my personal credit card so now I owe $70,000 to banks. I have no late payments but I worry that if my business stays the same, I will not be able to make payment any more. What is the best option for me? – Faysil

Answer Dear Faysil,
It sounds like you’re an optimist who made overly hopeful projections about how much money your startup business would bring in. Many new small-business owners make the same mistake. It’s hard to figure out how much you’ll bring in. Unfortunately, as you’ve discovered, you can end up in hot water if you need to pay back loans out of the revenue from the business and the money isn’t rolling in.

So what do you do about this? You have many options. First, I would strongly encourage you to stop borrowing any money for the business. You need to focus on financing your growth out of cash flow for the moment. Take a look at what products or services are selling best and are most profitable in your business and focus on closing more sales.

If you can afford it, hiring an experienced freelance sales person might be a good bet, depending on your industry. Also examine how you are marketing the product. Focus on the sales channels that really lead to closed sales and hold off on experimenting with new ones for the time being. Only by selling more of your wares at a profit will you bring in the money you need to pay off your debt. If you or your partner are good at sales, I’d strongly advise you to make this your top focus right now.

Of course, the bills are due now. If those closed sales – or the receipts from them – are a few months away, you need to come up with money now. I’d suggest paring back on the time you are spending in the business and finding some other way to make money on a part-time basis. It could be a permanent part-time job, freelance work or a side gig such as driving for Uber. Look for something that taps into your highest skills so you can bring in the most pay for the hours you work.

If you have a bank loan, you probably have a relatively low interest rate, but if your debt is on credit cards, take a look at whether you can transfer the balances to a 0-percent interest card. That will keep the interest on your debt from mounting. If you can’t refinance some of it, I’d suggest paying off the highest-interest debt first, given that it is costing you the most.

It’s scary to have more debt than you can pay off quickly, but try to keep a cool head. If you can seriously ramp up your sales, you may be able to retire that debt pretty quickly. Just don’t push your luck and borrow any more until you stabilize your financial situation. Good luck!

See related: Startup didn't launch so credit rebuilding needed, Debt consolidation may not cure cash flow problems for business, 5 steps to prepare your finances for a startup

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Updated: 01-21-2018