5 steps to help your small business stay debt-free in 2021

Last year, small business owners all over the world have had to halt operations or take on loans to stay afloat.

By U2B Staff 

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Businesses across the globe have been affected by COVID-19, resulting in insufficient cash flow. While the world is slowly returning to normalcy with vaccines rolling out, businesses will still need to adapt their budgets or look into refinancing their loans to stay afloat.

Debt can be a powerful way to finance growth and expansion, but it can also spiral out of control if not managed properly. 

A survey by the Small Business Administration in 2017 said the decreased number of borrowers still borrow 600 billion dollars each year. The number doesn’t include other types of financing, such as buyouts or equity investments.


Small businesses with excessive outstanding debt may experience a further decrease in cash flow due to interest payments, leading to difficulty accessing additional capital. Additionally, depending on the business’s structure, it could negatively impact its credit score.

To avoid this, small business owners should prioritise repaying their debts as quickly as possible. Fortunately there are numerous strategies to consider — here are some to start working on:

Assess your debt

The first thing you should do is write out all your debt. This will help you get a clearer picture of how much debt you have and your ability to pay it off. Begin by calculating your debt-to-income ratio, and check if you have enough working capital to continue servicing the debt.

Once you’ve identified your goals, you can begin planning a way to keep yourself from being overwhelmed. A good game plan would be to pay off the most expensive debt first (or the one that is costing you the most in interest and fees). No matter how you choose to attack the debt, make sure to make timely payments on each account.

Negotiate with your lenders

If your small business’ debt structure has been hard to keep up with, get in contact with your lenders or creditors to discuss your loan terms. Typically, lenders will be willing to renegotiate the repayment period, monthly interest rate, and the total amount of debt that’s owed.

Lenders are unlikely to dismiss your debt. However, if you’re flexible, you may be able to negotiate a mutually beneficial exchange. For example, if you make payments on-time, your lenders may be willing to decrease your interest rates.

Your lender will likely want to work with you again in the future if you’re a good borrower, so don’t be afraid to discuss your repayment options with them.

Create a strict budget

Even if a lender is willing to extend your loan term, that doesn’t mean that it’s the right decision for your business. Paying off debt in a shorter period will cost more every month. Plus, the amount you owe will be less because there’s less time for the debt to accumulate.

Typically, the amount of new money you owe your lenders will eventually be greater than the amount you can earn by investing. While a reasonable ROI to expect on investment is under 10%, a typical business credit card may have an annual percentage rate (APR) that’s upwards of 24%. This means that when you’re creating a monthly budget, eliminating debt should be considered one of your highest priorities.


Reduce unnecessary expenses

Ken Thomson, cofounder of Biz911, a small business debt management firm, told Entrepreneur that a crucial step in getting out of debt is identifying the parts of your business that got your company into debt before tackling them head-on. You might want to relook at your expenses and cut out unnecessary ones.

If you find that your small business is spending too much on office space and could benefit from downsizing, you could consider letting some employees work remotely. Additionally, if you’ve spent too much cash on advertising instead of taking advantage of cheaper marketing channels like social media and blogging – now would be the perfect time to start.

Increase revenue

Another way to reduce your debt is to grow your business and increase sales. Offer new products or services, extend your business hours, or try some new marketing tactics. 

It can be challenging to know what will resonate with your audience, but you’ve you’ve identified the methods that work for your business, focus on them as you try to reduce debt by generating more income.