Managing debt and loans effectively can be the key to transforming your small business’s financial health. In this article, insights from C-suite leaders and consultants provide actionable advice to help you navigate financial challenges with confidence. Learn how prioritizing high-interest loans can save money and uncover the advantages of building cash reserves for unexpected emergencies. With these expert tools, this guide equips you with the strategies for managing debt and position your business for long-term success.
Categorize Debt by Strategic Value
From my experience working with numerous startups, I’ve learned that debt management is a delicate balance—like walking a tightrope while juggling. Back at N26, I saw firsthand how even promising companies can stumble when they don’t structure their debt properly. The most effective approach I’ve found, and one we implement with our clients, is to categorize debt by its strategic value. Short-term loans should only be used for immediate revenue-generating activities, while long-term debt should align with growth initiatives that have clear ROI timelines. One particularly useful strategy we developed came from working with a tech startup that was struggling with multiple high-interest loans.
We helped them consolidate their debt and negotiate better terms by presenting a clear financial roadmap to lenders. It’s crucial to maintain open communication with lenders—I learned this during my banking apprenticeship at Sparda, where I saw how transparency often led to more flexible terms. We always advise keeping debt payments below 25% of monthly revenue, ensuring there’s enough cash flow for both operations and growth.
Niclas Schlopsna, Managing Consultant and CEO, spectup
Prioritize High-Interest Loans First
Prioritize the repayment of high-interest loans, as these can silently drain your business resources. High-interest debt, like business credit cards or merchant cash advances, often carries rates that can climb as high as 20% or more. This type of debt grows quickly, and even minimum payments can barely cover the interest, leaving the principal untouched. Make these obligations your top priority. Allocate extra cash flow to pay them down faster while maintaining minimum payments on lower-interest loans.
Let’s say your business is carrying a $20,000 balance on a credit card with a 22% interest rate. Over a year, this balance accrues $4,400 in interest if unpaid. Now compare that to a $50,000 equipment loan at 6% interest, which accrues $3,000 annually. By focusing on the credit card debt first, you free up money that could be reinvested into operations or savings, rather than watching it disappear into interest payments.
This strategy requires discipline, but it’s worth it. Use financial tools to stay organized and consider automated payments to ensure you stay consistent. Small steps like these build momentum and help your business regain control over its financial future.
Chris Heerlein, Chief Executive Officer, REAP Financial
Treat Debt as a Strategic Tool
The key to managing debt in a small business? Treat it like a tool, not a trap. Early on, we took out a loan to invest in better tech and hire top talent—it was scary, but we kept it under control by aligning payments with projected revenue growth. My tip? Don’t borrow more than you can realistically pay back, and always have a repayment plan that accounts for hiccups. Also, prioritize high-interest debt first and reinvest profits strategically to reduce dependency on loans over time. Debt’s not the enemy if you’re smart about it—it’s just part of the game.
Justin Belmont, Founder & CEO, Prose
Use Capitalized Leases for Growth
Early in my business journey, I was determined to avoid debt, a habit rooted in my personal finance approach. This led me to purchase fleet vehicles outright with cash. However, as the business grew, I realized the importance of preserving cash for operational needs like payroll.
To balance growth and financial health, I shifted to a capitalized lease program. This strategy allowed us to expand our fleet without depleting our cash reserves, a crucial asset for a growing business.
Navigating debt in a small business can be delicate. It’s not just about acquiring funds but using them strategically. I’ve always prioritized long-term investments with consistent returns. For instance, we financed solar panel installation equipment to enhance our operations and unlock new opportunities.
My advice? Borrow wisely. Assess the potential return on investment (ROI) of any expenditure. If the benefits outweigh the costs, borrowing can be a valuable tool. But always have a solid financial plan to manage repayments and maintain a healthy cash flow.
Landon Wimmer, CEO/Owner, Empower Home
Consolidate Loans for Better Terms
What I’ve done to manage debt in my business is consolidate multiple loans into a single one with a lower interest rate. I combined several payments into one straightforward loan, which reduced the overall interest we were paying. This made managing cash flow easier and allowed me to plan payments more accurately without the hassle of juggling different schedules and amounts. It was a clear way to simplify our financial obligations and regain control over how money moved in and out of the business.
With fewer moving parts, I could direct more attention to growing the business. The reduced financial pressure meant we could reinvest in areas like equipment upgrades and staff training, which are essential for a service-oriented business like mine. Consolidating debts created a stable foundation that gave the business the breathing room it needed to expand while staying financially healthy.
Daniel Vasilevski, Director & Owner, Bright Force Electrical
Separate Personal and Business Finances
Managing debt and loans effectively is crucial for the health of any small business. One strategy I’ve found invaluable is maintaining a clear separation between personal and business finances. Early in my career, I made the mistake of using personal credit to fund business expenses, which complicated tracking and repayment. Opening a dedicated business account and applying for business-specific credit allowed me to better organize cash flow, monitor spending, and build credit for my business independently.
Another key lesson I’ve learned is the power of negotiation and proactive communication with lenders. During a slow period, I reached out to renegotiate terms on a loan, which resulted in a lower interest rate and an extended repayment period. Many lenders are willing to work with you if you’re transparent and show a plan for repayment. By staying organized and open to discussions, small business owners can avoid financial strain and focus on growth.
Brandon Leibowitz, Owner, SEO Optimizers
Balance Credit Use for Growth
As an entrepreneur running a small business, I’ve learned a few hard lessons about managing debt and loans over the years. The key is finding the right balance—using credit wisely to fuel growth without letting debt payments overwhelm your cash flow.
When starting out, it’s tempting to max out credit cards or take out large loans to get up and running quickly. But it’s crucial to only borrow what you can realistically pay back on time and in full each month. High-interest debt will sink a business fast. I aim to use credit selectively for purchases that will generate ROI, like equipment or inventory that will lead to more sales and profits.
It’s also important to establish business credit and lending relationships early on. Having a business line of credit or term loan ready when you need it beats putting expenses on a high-rate credit card. And working with a banker who understands your business goals can help tailor financing to fit your needs.
Lastly, staying organized and vigilant about repayment schedules is a must. I calendar all loan due dates and set payment reminders to avoid missed or late payments, which incur fees and penalties. Tracking cash flow projections also helps ensure sufficient funds will be available for debt payments.
Managing loans and credit wisely takes discipline, but is well worth it to build a healthy, growing small business.
Noel Griffith, CMO, SupplyGem
Strategic Budgeting for Debt Management
Balancing running a successful small business with managing debt and loans can be a daunting task. One lesson learned from my journey is the importance of strategic budgeting and its correlation with effective debt management. Building a business model that prioritizes profitability over growth helped us steer clear of burdensome debt.
When faced with business fluctuation and cash flow issues, I recommend considering alternative methods of financing, such as engaging strategic partners or implementing a small increase in product pricing. For instance, during the early days of my company, we instituted a just-in-time inventory control system which significantly reduced holding costs allowing us to manage debt more effectively. Remember, open lines of communication with lenders and investors as well as maintaining a contingency plan can be instrumental in managing small business finances.
Mark Agnew, CEO and Founder, Eyeglasses.com
Utilize Financial Services for Cash Flow
Running an ecommerce manufacturing company, I have been able to utilize financial services to allow me access to cash quickly; it helps to keep a steady stream flowing. These providers help with cash flow by providing early funding against secured contracts (but for a fee or interest). Even with the cost, this success can be helpful to smooth over some of the bumps in finance, particularly through growth, and thus a part of the strategy.
Building good credit and negotiating great payment terms with vendors is also really helpful. You also get more time to manage your finances before having to deal with bills to pay. Strike a balance between these extensions and maintain trust and goodwill with your suppliers, which definitely underpins long-term operations.
One of my tips is to have a detailed budget that encompasses your fixed and variable expenses and a good understanding of your revenue stream, well in advance. Keeping your financial plan updated gives you a picture of your company’s financial health and can help you determine when you can afford to take on new debt or invest in growth opportunities.
By regularly reviewing things like your budget and quickly adjusting to any changes in the market or environment around you, you can stay agile in the face of the next financial hiccup that can come in the form of market volatility, a large purchase, or anything unforeseen. Moreover, establishing an emergency fund helps protect against unforeseen expenses and reduces the need for expensive credit services. This considers improving fiscal responsibility and ensuring better business stability to allow business growth on solid ground.
David Rubie-Todd, Co-Founder & Marketing Head, Sticker It
Monitor Cash Flow for Repayment
A well planned and effective approach is needed to manage a small business debt and loans. One of the biggest strategies that I’ve put in place is making sure that I know where the cash flow is and where it lies in relation to repayment obligations. It begins with a detailed financial plan that reflects all forms of income, expenses, and debt obligations regularly. By having an accurate view of our financial health, I am able to make informed decisions about the right time to borrow, the amount to borrow, and how to prioritize repayments without jeopardizing the stability of the business.
In the early growth phase of my business, I had an experience that shaped my approach. I learned that it’s not all about interest rates, you have to look at the terms and structure of the loan itself. For instance, I chose the loan that offered flexibility in repayments over a slightly lower interest rate because that flexibility offered a buffer in the slow months. This made me realize that tying your debt terms to your revenue cycle can be the difference between staying up all night worrying about payroll and relaxing on the beach.
A key practice, though, is using debt wisely. I view loans as tools of growth, and I ensure they are used for investments that produce a visible return, such as scaling operations or upgrading technology. It ensures we keep the debt levels towards unnecessary or short-term willingness to create financial discipline that can help focus on sustainable growth.
If you are a small business owner who is struggling with debt, my advice is to establish a relationship with your lender or financial institution. Being open may allow you to negotiate better terms or find help if your situation changes. You should also always keep an emergency fund while paying off your loans. This safety net ensures peace of mind and flexibility if life throws a curveball.
Maintaining your debt well means managing balance, finding the right level to use debt as a tool to grow, while ensuring your cash flow doesn’t get bogged down. With careful planning, strategic use, and consistent monitoring of your debt can become a stepping stone to success, instead of a source of stress.
Timothy Brooks, CEO, Synergy Houses
Automate Payments and Transfers
Effectively managing debt and loans in a small business requires a strategic approach that blends financial discipline with smart automation. One method I recommend is using Sequence.io, a financial automation router, to streamline payments, automate loan repayments, and ensure cash flow stays on track. By routing transactions intelligently, you can prioritize debt payments while maintaining operational liquidity.
Additionally, adopting low-fee banking platforms paired with a profit-first bank account structure is highly effective. This involves creating separate accounts for specific purposes—like operating expenses, profit, taxes, and debt repayment—and automating transfers into these accounts based on a percentage of revenue. For example, we set up an automated system to direct a portion of retained earnings toward debt reduction and another toward a savings buffer, ensuring consistent progress without manual effort.
This approach not only simplifies financial management but also fosters discipline, ensuring debt is tackled methodically while preserving capital for growth and stability. Automating transfers and leveraging tech solutions like Sequence.io helps reduce errors, save time, and give you a clear picture of your financial health.
Jimmy Patterson, President, TruScape LLC
Blend Debt Repayment with Savings
Effectively managing debt and loans in a small business often comes down to balancing financial priorities while maintaining a sense of security. One common question is whether to prioritize paying off debt or building an emergency fund first. While the “financially correct” answer is to pay off high-interest debt as quickly as possible, reality often requires a more nuanced approach.
Personally, I recommend a blended strategy. Create a debt repayment plan with clear timelines and goals while also contributing to an emergency fund, even if it’s a small amount each month. This approach reduces financial stress and provides a safety net, which can be invaluable when unexpected expenses arise. For example, if you allocate 75% of your available funds to debt repayment and 25% to savings, you can steadily reduce your debt while building financial resilience.
The key is consistency and adapting based on your cash flow. If debt feels overwhelming, breaking it into manageable steps while simultaneously growing your emergency fund can keep you motivated and focused. Remember, financial health is about creating stability and options for your business and your future.
Meg Wheeler, Founder + CEO, Equitable Money Project
Explore Government Subsidies for Relief
Exploring government subsidies can be a game-changer for managing debt in a small business. Many entrepreneurs overlook this because they assume subsidies are only for large corporations or specific industries. Yet, there are often local, state, and federal grants designed specifically for small businesses, and not all are sector-specific. Digging into these resources can significantly lower borrowing costs. For example, the Small Business Administration (SBA) offers loan programs with favorable terms that can ease financial strain, allowing businesses to focus more on growth than on repaying high-interest loans.
Research is crucial and often the first step is checking your local business development office or chamber of commerce. They usually provide guidance on existing grants or subsidized loans that fit your business profile. You can also utilize online resources dedicated to grant searching. Beyond just finding these options, the application process requires thorough preparation, often needing detailed business plans and financial projections. Not everyone takes the time to refine these documents, but doing so can set your application apart. In essence, thoroughly exploring and applying for government subsidies can transform the financial health of a small business, freeing up cash flow and reducing dependency on traditional high-interest loans.
Connor Butterworth, CEO, Southwestern Rugs Depot
Build Cash Reserves for Emergencies
Cash flow has always been an issue for small businesses and debt can significantly restrict cash flow. Interest paid to the bank could be used for general operating expenses or other needs within the business. I would suggest building up a cash reserve that can be like an emergency fund to help with cash flow during the slow times or when some unexpected expense comes up. This will help cut down your use of loans to cover these expenses.
Another suggestion is to contact your vendors and see if they offer discounts for cash payment versus credit terms. This is money saved on supplies and services you use in your daily activity. This cash can be used to help fund the emergency or maybe for something fun for your employees. There are many ways to use budgeting to maximize cash flow so you can cut down on debt and eliminate loan payments. Start small and get creative.
Allison Labs, CCE, Credit Manager, Lloyd Flanders
38 Views
Trending Articles
