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What to do if your business is in debt?

  • Highlights

  • Create a list of business debts and plan repayment

  • Liquidate inventory, increase sales and cut costs

  • Take a debt consolidation loan and follow up on dues

  • Be smart about taking on new debt at favourable terms

Debt is an important part of running a business, as it helps you get access to funds when your business needs them. Once you acquire debt, utilise it well and manage it responsibly. Ensure you have a clear plan to repay the debt in the foreseeable future. If not, you may find your business burdened with debt at a high rate of interest, which can pose a challenge when it comes to repayment. Here are some tips to help you reduce debt.

Take stock of all your business debts and create a plan:

The first step to take when your business is in debt is to tackle it head-on. Make a list of all debts, including business loans, lines of credit, credit cards, etc. with their respective interest rates and monthly EMIs. This will help you to prioritise the most expensive debt. Then, focus on ways to pay off the debts, beginning with the most expensive one.

Boost sales, especially those of finished goods:

With a clear picture of which debt you need to settle first, refocus your energies on sales. Start with the following:
- Offer loyal customers cash discounts on advance payment for pending orders
- Get active on social media to engage customers and promote your products
- Find new sales platforms such as online retailing, sales via an app or sales through market aggregators and big online sellers

Cut costs and expenses:

Look at monthly costs and identify those expenses that can be trimmed or altogether eliminated. Also look at large outflows and see whether you can reduce them. Maybe you can move to a space with lower rent or sub-lease unused space on the shop floor to earn rent. Consider selling equipment or assets (unused machinery, furniture, vehicles) which your business is not currently using. A careful analysis will offer answers on how to reduce expense or earn income.

Refinance previous debt:

- With interest rates falling since the last several quarters, it is time to take advantage of lower interest rates to refinance your debt. This will help you not only to reduce monthly cash outflow but also gain time to increase revenue and get out of debt. Refinancing also helps add up all your business debt into one manageable chunk with a single EMI payment, which makes it easier to handle. Consider a Business Loan from Bajaj Finserv to consolidate your debt.

How To Get Small Business Finance From Bajaj Finserv

Follow up on receivables:

Focus on realising payments that are due. These could be either from customers who pay late or from customers who enjoy long-payment terms. Change your payment terms for new orders and give incentives to those customers who make payments on time such as a small discount.
As you plan on repaying this debt, don’t become averse to debt as a whole. Business financing is an important part of getting funds for your business while retaining ownership. So, for the next round of business needs, consider loans customised for SMEs that offer favourable terms like nominal interest and flexible repayment.

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