The past few years have been rough for many businesses. Your small business may have trouble paying its bills due to a slowdown in revenues, higher than usual expenses, inflation, cash flow problems, any number of business challenges.
Here are 14 options entrepreneurs can consider if their business can’t pay its bills.
1. Assess Small Business Finances
The first step in any financial crunch is to understand what’s going on financially in your business. If your bookkeeping is up to date, you can review financial statements like your profit and loss statement, income statement, and accounts receivable aging report (A/R report) to get an understanding of where things stand.
If your financials are not up to date, consider hiring a bookkeeper who can get everything into your accounting software. If that’s not feasible, pull out your business checking account and business credit card statements, and any other relevant documents, to assess your business finances.
Tip: Need help? Small Business Administration resource partners like Small Business Development Centers (SBDC) and SCORE provide free mentoring for small business owners, and services are free or low cost. Find local help here.
2. Review Small Business Debts
Next make sure you have a complete picture of your small business debt. You’ll want to create a schedule of your debts that shows:
- How much you borrowed
- Daily, weekly or monthly payment amounts
- Annual Percentage Rate (APR) or factor rate
- Remaining balance
- Remaining time to pay
- Collateral/UCC filing for secured loans
- Personal guarantees, if any
This information will be helpful as you review your options in the following steps. It can also help you in prioritizing your debts. For example, debts with personal guarantees put your personal assets at risk of you default and so they may be more urgent.
3. Better Cash Flow Management
Remember those financial statements we discussed earlier? You can use them to investigate options to improve cash flow and free up more money to use to pay debt.
This may mean cutting variable expenses, renegotiating contracts with suppliers or finding new lower-cost options, speeding up how quickly you collect invoices by offering discounts or faster payment, raising prices, cutting less profitable products or services, and more.
By delving into cash flow management, you may find both short-term and long-term opportunities to improve your business financial health.
4. Consider Short-term Financing
If you have a truly short-term need for cash, find out whether your business is able to access any of the following forms of financing:
Both of these types of short-term financing may help improve cash flow if your situation is really temporary.
It’s best to leverage financing when you have a clear plan for how it will help you make money, though. So be cautious about new debt. You don’t want to dig a deeper hole that’s harder to climb out of.
5. Negotiate With Your Suppliers and Vendors
Your suppliers and vendors are well aware of what is going on and may be able to work with you to negotiate lower payments or longer payment terms for a period of time. They will want to keep your business in the long run, and may be flexible about deferring or accepting reduced payments.
Make sure you understand what will happen if you renegotiate terms. If you make partial payments, will those be reflected on your business credit reports as late payments? (If so, that may lower your business credit scores.) Will you have trouble getting supplies on credit in the future from that vendor?
6. Business Credit Card Balance Transfer
Find out if your business credit cards offer low-cost balance transfers. You may find these offers under the “offers” or “promotion” tabs on your online account, or you can call your issuer. You can also get a new business credit card with a balance transfer.
If you can’t find a viable option, and you have a personal credit card that is paid in full and offers a balance transfer, you may consider whether it makes sense to use that. (It’s best to avoid mixing business and personal debt on the same card.)
Another option is to consider a 0% intro APR credit card for necessary business expenses to give yourself more time to pay while you tackle your debt.
Be careful: once the intro period expires, the new rate could be much higher.
7. Make Lower Credit Card Payments
While it’s good financial advice to pay your business credit cards off in full to avoid interest, there are times when making minimum payments can help your business get through a time of tight cash flow. If you go this route, make sure you understand the interest rate you’ll be charged, and be very careful to use those credit cards only for essential business expenses. Also, understand that high balances on credit cards that report to the owner’s personal credit may lower your credit scores.
It’s also important to note that if you don’t make your minimum payment on your credit card, you will be charged a late fee and interest. If you have a business credit card, your interest rate may immediately go up to the default rate on your outstanding balance. (On a consumer credit card, you generally must be more than 60 days late before your rate can increase.) If you can’t make your minimum payments, check out the advice below.
8. Consider Business Loan Refinancing
If you have business debt with high interest rates or payments, find out whether loan refinancing or business debt consolidation is an option. It may or may not be, depending on your credit, income and other qualifications. But it’s worth exploring.
If you are able to refinance debt, you may want to choose to focus on refinancing the debts with the highest interest rates first, or tackle the debt with the most onerous payments (daily payments, for example). Business loan refinancing may only be available to cover part of your debt, so you may want to focus on the ones that are causing the most financial pain for your business.
9. Talk to Your Lenders
Your lenders don’t want your business to default on payments. They may be able to work with you to restructure your small business loans or financing temporarily. If you’re facing the prospect of not being able to make payments, you’ll want to let them know what’s going on and see whether they can accommodate you with lower payments for a period of time.
If you have an SBA Covid-19 EIDL loan, you may be eligible for a hardship accommodation.
If your business has loyal customers but you’re struggling, your customers may be able to help with crowdfunding. There are several different types of crowdfunding for business, and most don’t require good credit.
But crowdfunding requires good marketing so you’ll need to put time and effort into crafting a successful crowdfunding campaign. While some businesses were able to crowdfund donations during the pandemic, today you’ll likely need to offer something valuable to your audience, whether that’s a unique product in a rewards-based crowdfunding campaign, or even equity through an investment crowdfunding campaign.
11. Renegotiate Space
If you rent your space, find out whether it’s possible to renegotiate your business lease. If that’s not an option and you can’t afford to stay, explore the financial implications of terminating your lease. Some landlords are able to be more flexible than others, but if it is an area where they are unlikely they will be able to easily rent that space to another business, they may work with you to avoid having it sit empty.
12. Consult a Credit Counseling Agency
Non-profit credit counseling agencies, such as those who are members of the National Foundation for Credit Counseling, can help you evaluate your situation and suggest debt relief options. You may be eligible for a modified debt payment plan on some of your credit cards (personal credit cards only). Business consultations are available if you are self-employed. (Most small business owners operate as sole proprietorships and may have used personal credit cards in their business.)
Visit NFCC.org or call 1-800-388-2227 for a free consultation.
13. Consider Debt Settlement
When you fall behind on payments, your debt will often be sent to debt collection agencies. At that point, you may be able to negotiate lower pay-offs to resolve the debt.
With debt settlement, you settle your debt for less than the full amount owed. This small business debt relief option is not without drawbacks—including late fees and interest, or even potential lawsuits from creditors—but it does work for some individuals and small business owners who can’t pay their full debts but for whom bankruptcy is not a good option.
It is important to understand that there is no guarantee that each of your creditors will settle. Some borrowers start the debt negotiation process only to find they need to file bankruptcy.
14. Talk With a Bankruptcy Attorney
Small business owners may find business bankruptcy an option for restructuring debt, liquidation, or to officially wind down a business with bills that can’t be paid back. Some types of bankruptcy (Chapter 11 or Chapter 13) may allow the business to continue to operate while making smaller payments. Chapter 7 can help a business close and avoid protracted legal battles over unpaid debts.
This can be a scary step. But keep in mind that consulting with a bankruptcy attorney doesn’t mean you will or must file for bankruptcy, and it may provide you with helpful information about what legal actions you may face if you or your business can’t pay your debt in full.
- Can your business assets be seized?
- Can you lose personal assets like your home?
- What are your options if you are sued for nonpayment?
If you’re contemplating bankruptcy, or trying to avoid it, it’s a good idea to get professional advice.
If your business is struggling due to economic conditions, explore your options sooner rather than later. The sooner you do, the more options you’ll have.
This article was originally written on March 13, 2020 and updated on February 5, 2024.
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