Owning a business is a big responsibility, especially if you have employees who rely on you for a paycheck. While it’s natural to incur debt during the course of business ownership, how you manage it will dictate your financial health.
Your goal is to avoid a situation in which you have more business debt than you can comfortably handle. If you fail in doing so, you’re not out of luck. Instead, learn more about your debt, including the type and amount, and then make decisions on what to do next.
There are a variety of debt management strategies to consider, with the direction you take based largely on the type of debt. Here are some situations you may face:
- Large amount of credit card debt: Credit card debt has a way of quickly growing out of control. If you have debt on more than one credit card, a business balance transfer may make sense. It allows you to bring all your business credit card debt under the same roof, thus saving you money on interest and allowing you to better organize your finances.
- Business loans: When securing a business loan, you sign a contract that outlines the terms and conditions. For example, you’ll have X number of years to repay X amount of money, with interest. If you can’t repay a loan, consult with your lender about a potential modification. Also, if you have more than one loan, you may be able to consolidate them.
- Tax debt: The IRS is serious about ensuring that every business, regardless of industry and size, pays the appropriate amount in taxes. Tax debt has the potential to close down your business, while also resulting in criminal charges. Once you understand your liability, you can request an offer in compromise (OIC) or negotiate a payment plan.
Depending on the amount of debt, revenue and your outlook on the future, you may want to consider the benefits of filing for bankruptcy.
For example, if you’re a sole proprietor or LLC owner, it doesn’t hurt to learn more about Chapter 7 or Chapter 13 bankruptcy.
There is no right or wrong way to deal with business debt, as every company owner is facing unique financial circumstances. However, when you know your options and legal rights, it’s easier to take the appropriate steps.