When you’re first starting out in the business world, financing can be a useful and often necessary tool to jumpstart your business. However, this debt, without proper care, can begin to cause problems rather quickly. If you understand how to handle your small business debt properly and you know the difference between good and bad debt, you can easily accelerate your business without running into money troubles.

What is Business Debt?

Many ordinary individuals don’t know that you can actually accrue two different types of debt. These two types of debt are consumer debt and business debt. Consumer debt is your usual personal debt that most everyone is familiar with: car loans, mortgages, credit cards, and student loans. Consumer debt is accrued for personal reasons.

When debt is accrued for business reasons, it is business debt. This type of debt is also called non-consumer debt. There is, however, some gray area when it comes to distinguishing business debt vs. consumer debt. For example, if you have a company expense card which has accrued debt, that is a business debt. Conversely, if you purchase a personal computer that you also use for work, that is a consumer debt. 

It is important to understand the difference between your consumer debts and business debts in case you ever find yourself in a situation where you have to file for bankruptcy. 

Small Business Debt: An Overview

Most small business owners have around $195,000 of debt, according to USA Today. While this amount may seem daunting, and may make you want to avoid taking out a business loan, business credit card, or line of credit can make it much easier to finance the expenses that come with running a small business.

One key way to make sure that any debt you take on works for you, rather than against you, is to understand what a healthy debt looks like, and how to get out of bad debt if you have it. In order to take on a healthy debt, it may be best for you to consult with financial professionals to ensure that you have the right financial plans for the loan or line of credit you will be receiving, as well as the proper business plan to support and pay off the debt before it gets out of hand. 

How To Get Out of Bad Business Debt

If you find yourself in a situation where you have more debt than you can handle, and the debt has gotten out of hand, there are a few ways you can begin to dig yourself out of the bad business debt.

  • Get organized. By taking an inventory of all business debts you’ve accumulated and prioritizing payments based on interest rates and monthly payment costs, you’ll be better equipped to decide which debts to tackle first.
  • Increase your profits. By making more sales, you will be able to put more money towards paying down your debts. Increasing your profits can be achieved with improved marketing, social media campaigns, creating a customer loyalty program, or by offering sales promotions.
  • Consider consolidating or refinancing your debts. If you have good credit, this is an option that can lead to less monthly payments and the chance of a lower interest rate.

Questions About Business Debt? Talk to a Professional.

Our team of professionals here at Financial Optics is happy to help you if you are a small business owner with questions about business debt. Give us a call today and we’ll help you with all of your small business debt needs.