Small business debt relief can come from loan consolidation, expense reduction, or from renegotiating your current terms. Obtaining a consolidation loan may be your best long term debt relief option if you can wait long enough for the right loan. Consolidating or refinancing your business debt can result in lower APR, longer repayment terms, and less frequent payments.
An SBA loan with SmartBiz offers low rates and repayment terms up to 10 years, making your monthly payments more affordable. This is a great solution if you’re struggling with high-interest debt or high-frequency repayment schedules. You can prequalify with SmartBiz online in minutes and get funded within 30 days.
Small Business Debt Relief Options
The most popular debt relief option is to get a consolidation loan but other options could be a better fit for your business if you don’t need a large infusion of cash, or if you can’t qualify for a loan. If you need an immediate solution, while you wait to get funded for long term financing, there are other options available to fit your needs.
The most important consideration when seeking the best small business debt relief option for you is whether you plan to continue to operate your business. If you do, it is essential that you find debt relief that preserves your personal and business credit. If you do not plan to continue operating your business, debt relief will be about eliminating debt while protecting your personal assets.
The 6 best options for small business debt relief are:
1. Consolidation & Refinance
If you want to continue to operate your business, then defaulting on your current debt is not a viable option. Most small businesses seek debt relief from high-interest loans that require daily or weekly repayments. While this debt is typically taken out to solve a short term problem, it can make it very difficult for your business to keep your head above water.
Refinancing those short term loans with a longer term, lower interest rate loan can reduce your monthly payments substantially. Use our small business debt consolidation calculator to see what your payments might look like with a debt consolidation loan.
SBA loans and alternative term loans are the two primary options for small business owners looking for debt relief. SBA loans are typically the best option, providing lower interest rates and longer repayment terms than other financing. This makes it ideal to be used to lower your monthly debt payments.
SBA loans can be difficult to qualify for, and they can be time consuming when going through the application process. If you have an immediate need, or if you’re not a prime borrower, then alternative loans might be a better fit. You just have to be careful to make sure that the alternative loans you get will lower your overall debt costs.
SBA Loans for Small Business Debt Relief
SBA loans typically offer the lowest rates and longest repayment terms available to small business owners. For that reason, they’re often the most affordable way to find debt relief. However, SBA loans also have very high minimum requirements, including:
- 2+ Years in business
- 680+ Credit score (check your score for free)
- Seeking at least $30,000
- At least $120,000 in business revenues for the past 12 months
- Business is profitable
- Often need real estate as collateral (as much as 50%+)
Not only are the minimum requirements very high, there is a great deal of paperwork involved with applying for an SBA loan. In fact, they can take upwards of 3 months to get funded. However, you can’t beat a 10 year term and interest rates around 6.5%. So if you meet the requirements and can wait a couple months for the refinancing, you should consider an SBA loan.
Our recommended SBA loan provider is SmartBiz, who can get you funded for up to $350K to refinance your business debt. If you meet the qualifications above, you can fill out an online application and prequalify in minutes and funded in as quick as 30 days.
Alternative Term Loans
Alternative term loans are another good option for business debt consolidation. They often have repayment terms of up to 5 years and interest rates in the mid-teens. That makes an alternative loan a much more affordable option than the high-interest, short term debt that gives so many business owners headaches.
The minimum qualification requirements are much lower than an SBA loan and the loan can typically be funded in a fraction of the time. General minimum qualification requirements include:
- 1+ Year in business
- 600+ Credit score (check your score for free)
- Seeking at least $5,000
- At least $25,000 in annual business revenues
- Business is profitable
These alternative loans are often referred to as medium term loans. Many offer loans up to $500k and terms up to five years. There are a number of alternative term loan providers out there to choose from. We’ve put together a review of the best medium term loan options, which fit the mold of an alternative loan we’re describing in this article.
Benefits of a Debt Consolidation Loan
Choosing to refinance your small business debt generally gives you 4 distinct benefits:
1. Saves You Money
Getting a long term loan with lower interest and longer repayment terms than your current debt is going to most likely decrease your monthly payments. This can free up a significant amount of cash flow to be used for other expenses, or to reinvest back into your business.
2. Spreads Out Loan Payments
Longer repayment terms allow you to spread out the same amount of money you owe over many more payments. This means you might end up paying more interest through the entire term of the loan, but it also means that you’ll be paying less on that debt every month.
3. Less Frequent Payments
Some businesses are tied to debt that require daily or weekly payments. Depending on the payment cycle of your customers, this could be very difficult to manage. Small business debt consolidation loans typically only require you to make one monthly payment. This could help your cash flow throughout the month, even if your payments were for the same amounts.
4. Borrow Additional Working Capital
Getting small business debt relief through a consolidation loan is a good time to think about additional working capital. If you’ve improved as a borrower, or have paid off a significant amount of your current debt, then you may qualify to borrow more than you currently owe. It’s a good way to not only lower your payments, but also to get a quick cash infusion for your business.
Your best option for debt consolidation is likely going to be an SBA loan, which routinely offers the lowest rates and longest repayment terms. SmartBiz can get you funded for a debt consolidation SBA loan up to $350K in as little as 30 days. Prequalify online in a matter of minutes.
2. Rework Your Budget
Before you pursue any small business debt relief options, make sure you’ve optimized your budget. Knowing every expense within your budget will help you identify ways to improve your cash flow, and it will help you meet your debt obligations. Not only that, but SBA loan providers will want to see how you plan to make your debt payments moving forward, after they’ve funded your consolidation loan.
You should look for the following opportunities within your budget to improve your cash flow:
Eliminate Unnecessary Expenses
The first step in reworking your budget should be to pull out every expense that is a necessity in keeping your business going. While you can’t get rid of these necessary expenses, all other expenses can possibly be eliminated to help you improve your cash flow. Prioritize the expenses that are not a necessity and start eliminating them, beginning with the least important.
This is generally a good short term solution to help you manage your debt payments, even if you don’t see enough debt relief to solve all of your problems. Plus it will make your loan application even better if you’ve done this prior to applying for a consolidation loan.
Consider Increasing Your Prices
Do a quick market study to determine if you have certain products or services that you might to charge more for. If you aren’t going to lose customers and your prices will still be competitive in your market, then increasing your prices can provide an immediate boost in revenue. This additional revenue can be earmarked specifically for your small business debt relief efforts.
Promote Higher Margin Products or Services
Consider what products you could add to your line that has higher margins than the products you currently offer. Increasing the sales of higher margin products/services will improve your bottom line and give you more cash to tackle debt relief efforts. Promoting higher margin products /services is unlikely to upset your existing customers or your creditors, and it may even bring in new customers.
3. Negotiate Terms with Creditors & Trade Partners
Revisiting the terms you have with suppliers and trade partners can also play a role in small business debt relief. Simply requesting small changes in payment scheduling or interest rate can make a huge difference in your business’s ability to handle its debt, and doesn’t have to mean you’re defaulting on your debt. In fact, the best time to do this is before any default.
“Creditors that are being avoided, or that are not told the truth up front, are less likely to work with you. Many creditors would love to work out a payment schedule or a deal that will work for you because both parties benefit from doing so. Especially if the alternative is a default.
The key is to stay in front of the situation, and make sure you communicate with your creditors before you default, if at all possible. Once a default occurs, they’re likely to have less faith in your ability to both make timely payments and to communicate the truth to them.”
— Al Levi, the author of the 7-Power Contractor.
Here are the four best items you can negotiate to get relief from your trade partners:
Adjust Payment Due Dates
Your creditors might be flexible with regard to your payment due date. Having a large amount of debt payments due at the same time can make it difficult to meet all of your debt obligations and increase your need for expensive, short term borrowing. Simply adjusting your payment due date may actually help you alleviate the business debt issues you’re currently having.
Keep in mind, your creditors and trade partners have a very real stake in your business’s ability to avoid a default. If a payment due date is creating a cashflow problem that causes a strain on your business, they would probably rather change the payment date than not receive a payment at all.
Increase Repayment Terms
How much time you have to repay a loan directly impacts the size of each payment. By extending the repayment terms, you can lower your monthly payment amount significantly. If you can get your creditors to agree to a longer repayment term, you may be well on your way to solving your debt problem.
Keep in mind, however, that while extending your repayment terms can help your cash flow in the short term, it might also increase your total cost of capital. That’s because you may end up paying interest on your business loan for a longer period of time.
Receive More Favorable Terms from Trade Partners
You can negotiate directly with your trade partners to adjust your current payment terms. They may offer you additional terms, up to 90 days, if you have a history of paying on time. If you don’t currently have net terms, see if they’ll extend them to you but keep in mind that they may charge you a little more to do so.
Having a higher business credit score (check yours for free) can help you get these favorable terms with your trade partners. In fact, Dun & Bradstreet reports can show how up to date you are with paying all of your trade partners. Read our article on business credit reports to learn more about what they are and how you can improve your score.
Seek Flexibility from Landlord
If you have a good relationship with your landlord, you may be able to negotiate some flexibility in your current payment terms. You may get the landlord to lower your payments or even defer them for a few months.
Landlords don’t typically like looking for new tenants. Usually, they would rather work with their current tenants and continue receiving rent payments on a timely basis. Landlords that aren’t large corporations may be more familiar with your business and sensitive to local economic issues. This makes them even more likely to help your situation.
4. Create a Debt Management Plan
Nonprofit credit counseling agencies can help you create a debt management plan. These plans should only be considered if you have exhausted the options above.
Debt management plans aim to consolidate all of your unsecured business debt, such as credit cards, into a single monthly payment. The credit counseling agency will reach out to all of your creditors and ask for concessions on the interest rates they’re charging you. Once agreements are made you will pay the agency directly and they will distribute the payments to your creditors.
While this can get you the debt relief you seek, there are some negative aspects of this option that you should be aware of, including:
- It can typically take 3-5 years to repay your debts.
- Your credit accounts will usually be closed.
- Your enrollment into a debt management plan will show up on your business credit report, and it could negatively impact your score.
- You may struggle to receive additional borrowing in the future.
One benefit to this option is you can outsource the effort of dealing with creditors. You may want someone else to handle this for you for the simple reason of freeing you up to focus on growing your business. This can be a good solution if you don’t qualify for financing and you’re significantly behind on your debt payments.
5. Hire a 3rd Party to Settle Your Debts
Debt settlement is a reduction in the principal you owe your lenders, but it will have a negative impact on your credit. This should be the last move you consider before filing bankruptcy. These 3rd parties are typically professionals that generally earn a percentage of the amount they save you.
While you won’t lose your assets (beyond those pledged as collateral) if your creditors agree to take less money for your debts, you will be hurt by it. A settlement is typically done to lower the total amount of the debt you owe, but it damages your credit, because it will show up on your credit report as a default. This is not a decision that should be taken lightly.
While there are many non-attorney businesses that offer these services, we recommend working with an experienced attorney. They are the most qualified individuals to help your business navigate the settlement negotiations and to make sure all of the paperwork is handled properly so that your debts are fully settled with no future obligations.
6. Seek Bankruptcy Protection
If making payments through a debt management program or negotiated settlement is not an option, you may need to consider filing bankruptcy for your business. At that point, a business bankruptcy may provide you with additional legal protection.
Filing a business bankruptcy can seriously impact both your business and you personally, and it should be a last resort. Make sure you find an attorney who is very experienced in bankruptcies for businesses of your size. This will give your business the best representation through the entire process.
If you plan to continue operating your business then you should not fall behind on your current debt payments. There are many options available to you as you seek small business debt relief, such as negotiating with your creditors or improving your budget. The best option is likely going to be a consolidation loan, which can lower your debt payments and free up your cash flow.
SBA loans will typically offer you the best debt relief solution, and allow you to refinance all of your debt into a single monthly payment. SmartBiz can get you funded for up to $350K and refinance your debt within 30 days. To qualify you’ll need 2+ years in business, be profitable, and have a 680+ credit score. Prequalify online within minutes.