Key Takeaways
- Start by organizing all your accounts, clearly indicating how much you owe, to whom, and by when.
- Consider various strategies to reduce your debt, such as avalanche pay-off and refinancing
- If you are going to refinance with an SBA 7(a) loan, ensure you’re aware of what types of debt can and cannot be refinanced with an SBA loan
Why Debt Management Matters
Entrepreneurs go into debt for lots of reasons— taking out loans to fuel a new project, using credit to bridge slow seasons, or even taking out start-up capital to kickstart a new business.
Because of this, debt isn’t inherently “bad.” As long as you’re strategic about when you take on new debt and what kind of debt you take on, borrowing money helps propel your business to new heights and bring your vision to life.
That said, ensure you are properly assessing your borrowing options as well as considering your repayment plan prior to applying for additional debt. This will ensure you have a plan in place that works for your business’s growth.
Debt organization helps you not only keep up with your repayment plan, but also helps you maintain and improve your SBSS score, avoid late payment fees, and take advantage of refinancing and consolidation opportunities.
Additionally, having an awareness of your debt holdings and potential options for decreasing your payments can help you assess options for more funding in the future, as your existing debt does affect how you qualify for additional loans.
Because of this, debt isn’t inherently “bad.” As long as you’re strategic about when you take on new debt and what kind of debt you take on, borrowing money helps propel your business to new heights and bring your vision to life.
That said, ensure you are properly assessing your borrowing options as well as considering your repayment plan prior to applying for additional debt. This will ensure you have a plan in place that works for your business’s growth.
Debt organization helps you not only keep up with your repayment plan, but also helps you maintain and improve your SBSS score, avoid late payment fees, and take advantage of refinancing and consolidation opportunities.
Additionally, having an awareness of your debt holdings and potential options for decreasing your payments can help you assess options for more funding in the future, as your existing debt does affect how you qualify for additional loans.
Understanding Your Business Debt
Managing debt effectively starts with knowing exactly what you owe and to whom. It may seem trivial, but this preliminary basic organization can go a long way in keeping you up to date and aware of your debt holdings throughout the life of each repayment plan.
Know Exactly What You Have
Begin by listing all your outstanding debts in one place. This includes loans, credit lines, vendor credit, and any other financial obligations tied to your business.
For each debt, record the lender’s name, the original loan amount, current balance, interest rate, payment schedule, and any associated fees. Having this information organized will help you prioritize payments and identify opportunities to reduce costs.
For each debt, record the lender’s name, the original loan amount, current balance, interest rate, payment schedule, and any associated fees. Having this information organized will help you prioritize payments and identify opportunities to reduce costs.
Types of Debt
Small businesses typically carry different forms of debt:
- Term Loans: Fixed repayment schedules over a set period.
- Lines of Credit: Flexible borrowing for short-term needs, usually with variable interest rates. This includes credit card debt.
- Vendor Credit: Agreements with suppliers allowing delayed payment for goods or services.
Calculating Total Debt and Interest Obligations
Once you’ve listed all debts, calculate your total outstanding balance and the cumulative interest you’ll pay over time.
This step gives you a realistic view of your financial commitments and helps you plan repayment strategies. Use simple tools like spreadsheets or accounting software to track these figures, or incorporate it into your preferred bookkeeping methods.
Knowing your total debt load and interest obligations can guide decisions such as refinancing, consolidating, or accelerating payments.
This step gives you a realistic view of your financial commitments and helps you plan repayment strategies. Use simple tools like spreadsheets or accounting software to track these figures, or incorporate it into your preferred bookkeeping methods.
Knowing your total debt load and interest obligations can guide decisions such as refinancing, consolidating, or accelerating payments.
Strategies to Manage and Reduce Debt
Managing business debt isn’t just about making minimum payments, it’s about creating a plan that reduces costs and strengthens your financial position.
By taking a proactive approach, you can free up cash flow, lower interest expenses, and position your business for growth.
Two of the most effective strategies are prioritizing high-interest debt and evaluating whether refinancing or consolidation makes sense for your situation.
By taking a proactive approach, you can free up cash flow, lower interest expenses, and position your business for growth.
Two of the most effective strategies are prioritizing high-interest debt and evaluating whether refinancing or consolidation makes sense for your situation.
Prioritizing High-Interest Debt
Not all debt is created equal. High-interest loans and credit lines can quickly drain your resources if left unchecked.
Start by identifying which debts carry the highest interest rates and focus on paying those down first. This approach, often called the “avalanche method,” minimizes the total interest you’ll pay over time.
Even small extra payments toward high-interest debt can make a significant difference. By reducing these costly obligations early, you’ll free up funds that can be redirected toward other financial goals.
Start by identifying which debts carry the highest interest rates and focus on paying those down first. This approach, often called the “avalanche method,” minimizes the total interest you’ll pay over time.
Even small extra payments toward high-interest debt can make a significant difference. By reducing these costly obligations early, you’ll free up funds that can be redirected toward other financial goals.
Refinance vs. Consolidation
If your business carries multiple loans or credit lines, refinancing or consolidating debt can simplify repayment and lower costs, but they’re not the same thing.
Refinancing involves replacing an existing loan with a new one at a lower interest rate or better terms.
This is ideal if your credit has improved, market rates have dropped, or you find a lender or loan servicer offering lower rates.
SBA 7(a) loans through NEWITY are a great option for refinancing small business debt, as we offer highly competitive rates, 10 year repayment plans, and do not require down payments or prepayment penalties.
Consolidation, on the other hand, combines multiple debts into a single loan, often with a fixed repayment schedule.
While consolidation can make payments more manageable, it’s important to compare the total cost over time and ensure you’re not extending your debt unnecessarily.
Both refinancing and consolidation can be powerful tools when used strategically, but they require careful analysis to avoid hidden fees or unfavorable terms.
Refinancing involves replacing an existing loan with a new one at a lower interest rate or better terms.
This is ideal if your credit has improved, market rates have dropped, or you find a lender or loan servicer offering lower rates.
SBA 7(a) loans through NEWITY are a great option for refinancing small business debt, as we offer highly competitive rates, 10 year repayment plans, and do not require down payments or prepayment penalties.
Consolidation, on the other hand, combines multiple debts into a single loan, often with a fixed repayment schedule.
While consolidation can make payments more manageable, it’s important to compare the total cost over time and ensure you’re not extending your debt unnecessarily.
Both refinancing and consolidation can be powerful tools when used strategically, but they require careful analysis to avoid hidden fees or unfavorable terms.
Refinancing With An SBA 7(a) Loan
Eligible For Refinancing
- Non-SBA business loans (e.g., commercial, private bank loans) if refinancing yields ≥ 10% monthly payment reduction
- Demand notes or balloon-payment loans
- Revolving lines of credit
Not Eligible
- Merchant Cash Advances (MCAs) & factoring arrangements
- Equipment loans
- Credit cards
- Personal debts or distributions not recorded on business returns
- Seller debt for multi-step ownership changes
- Delinquent existing SBA loans
For more information on what can and cannot be refinanced with an SBA 7(a) loan, please reach out to our team at NEWITY to learn more.
Being Proactive
Ultimately, wise debt management is all about proactivity.
Be intentional with your financial planning, ensuring you’re aware of your current debt holdings and how it’s affecting your cash flow, knowing when you anticipate needing to borrow capital, and doing the necessary research to make sure you’re committing to borrowing terms that work for you.
The SBA’s Lender Match Tool is a great starting point if you’re looking to identify a lender that best fits your business’s needs.
At NEWITY, our team is committed to ensuring you stay informed on the best options for your business. We work with you step-by-step to help you understand your options and get you loan terms that work for you.
Be intentional with your financial planning, ensuring you’re aware of your current debt holdings and how it’s affecting your cash flow, knowing when you anticipate needing to borrow capital, and doing the necessary research to make sure you’re committing to borrowing terms that work for you.
The SBA’s Lender Match Tool is a great starting point if you’re looking to identify a lender that best fits your business’s needs.
At NEWITY, our team is committed to ensuring you stay informed on the best options for your business. We work with you step-by-step to help you understand your options and get you loan terms that work for you.
Find out how much you could qualify for today!
