Debt is a major challenge for many businesses–but there are proven strategies for heading off trouble.

For many small businesses, debt is essential–and that doesn’t need to be a bad thing. The average U.S. small business owner is carrying $195,000 of debt, according to a 2016 Experian study.1 But 49% of these entrepreneurs say their debt is “major,” according to

If you’re in that “major” category, you can ease the burden—as long as you make honest assessments of your situation, communicate your difficulties, and don’t procrastinate.

How much debt is too much?

It’s far easier to cite a formula for household debt than it is for business liabilities. This is because there are certain tax and other advantages for an organization with debt. That said, using your best judgment should be your guide–if you’re feeling uncomfortable about your debt, chances are excellent that you’re in too far. So instead of relying on a formula for guidance, you should instead ask:

  • Are we having to dip into credit to meet regular overhead expenses such as payroll, vendor invoices or rent?
  • Are debt payments severely compromising our potential profits?
  • Are we borrowing as fast as we’re paying?

If you answer yes to any of these, it’s time to think differently about your debt load. Consider these steps for getting started on addressing debt stress:

Step 1: Start with a list.

Who and how much do you owe? How much interest are you paying for each obligation? Include:

  • Bank loans and lines of credit
  • Business credit cards
  • Vendor/supplier accounts
  • Any specific purchases you’ve financed with the seller

When prioritizing payments, consider the business impact. Some finance authorities suggest always paying the highest-interest debt first. This approach, however, ignores essential business needs: Say your largest vendor charges only 1% interest, but it will stop supplying materials if you’re late on a payment. Given the potential consequences, you should reconsider skipping this one.

Step 2: Look at (and revise) your balance sheet.

Review income and spending with your go-to business advisers or consider joining the SBA’s SCORE mentoring program for advice. Can you increase sales with a small, manageable discount? On the other hand, can you safely enact a small price increase without losing revenue?

Most businesses can reduce spending. Start by cancelling all but the most valuable publications, applications and memberships. Look for new, unadvertised plan options with your cell phone and Internet providers. Devise more creative travel and entertainment solutions.

Step 3: Don’t hesitate to communicate.

Pick up the phone and talk with your lenders. Acting early and responsibly gives them an opportunity to address the issue before it’s a crisis. And don’t be ashamed: Many lenders–above all your banking Relationship Manager–will respect your candor and work with you to create a solution, which leads to Step 4.

Step 4: Open up negotiations.

If you are in dire straits with a vendor, suggest more manageable terms for your debt–it can help you both. It’s better for them to offer a lower interest rate, a longer payment term or a temporary hold on payments (if not on interest accrued), than to have you default. You may need to provide supporting financial documentation proving your cash flow issue.

Lenders’ policies vary, and you should never demand or expect a compromise. But you won’t know until you ask.

Step 5: Refinance and/or consolidate debt.

It may ultimately be wiser to refinance your loan with a particular lender. Or you can consolidate, via a secured or unsecured loan with lower interest, several smaller, higher interest debts.

As a business owner, you likely already receive many debt consolidation offers. Scrutinize their rates, fees and other terms before applying. For best results, work with established and reputable lenders such as your bank or another community lending institution.

When you act early and honestly in addressing your debt struggles, you can possibly avoid greater problems. Before taking any actions, always consult with your accountant, financial adviser, and/or lawyer.

Learn more.

For more insights for better debt management, visit a branch or call an M&T Business Banking relationship manager at 1-800-724-6070.




This article is for informational purposes only. It is not designed or intended to provide financial, tax, legal, investment, accounting, or other professional advice since such advice always requires consideration of individual circumstances. Please consult with the professionals of your choice to discuss your situation.


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