Take these six steps to reduce small business debt

Shrink it

Are you currently paying down debt on your small business? Whether you had to take out a business loan to expand your operations, or you’ve run up balances on a few business credit cards, you’re not alone — 88 percent of small businesses carry some amount of debt. And most can benefit from tried-and-true strategies to reduce small business debt and free up capital for growth.

Why reduce small business debt?

Sometimes it’s necessary to take on debt to help move your business forward. In the long run, though, debt can be a small business killer. Half of all small businesses don’t make it to the five-year mark, and of the ones that close, 82 percent do so because of cash flow issues. If you’re making a profit, interest charges will cut into that, and if you’re not making a profit, they’ll put you even further in the hole.

Don’t let debt run your business into the ground.


By following the right strategies, you’ll be able to reduce small business debt and eventually pay off what you owe.

Reduce Small Business Debt Credit Card
Photo: frankieleon Flickr via Compfight cc

1. Evaluate your spending habits

You have to know where your money’s going, and it’s not enough to just have a general idea of your monthly expenses. You need a detailed breakdown of everything your business is buying.

Many small business owners take the old “you need to spend money to make money” adage to the extreme and get careless. When you’re in debt, you need to cut back on anything that isn’t necessary for your business’s day-to-day operations.

Maybe you’ve been paying for consultants and other B2B services that haven’t been providing much ROI, and it’s time to put those services on hold. Or perhaps the costs of business trips are getting out of hand, and you need to set allowances for employee travel.

Pro tip: Consider cutting back on travel expenses is by using rewards to book your trips instead of cash.

2. Build a better budget

After you’ve eliminated unnecessary business expenses, review your budget to determine how much money you can put toward paying off your debt. Set up a spreadsheet with all your business’s remaining expenses and its approximate income every month. This is also an excellent time to reevaluate your pricing to make sure that you have a high enough profit margin.

Without that, your business can’t be successful no matter how much you sell.


Commit a certain minimum amount every month for debt payments and add that as an expense. Don’t gloss over this step or tell yourself you’ll pay what you can, because then it’s too easy to use your money for other purchases. Planning to do something makes all the difference in whether or not you follow through with it.

3. Prioritize your payments

When you’re dealing with debt spread out over multiple credit cards, it’s wise to focus on paying them off one at a time. There are two ways to go about this:

  • Pay off the credit card with the highest interest rate first.
  • Pay off the credit card with the lowest balance first.

The former is the better option overall because you’ll end up paying less in interest. Some small business owners prefer the latter method to reduce the number of credit card payments they have to manage. Remember that while you’re prioritizing one credit card at a time, you still have to make the minimum payments on your other cards to avoid fees.

4. Consolidate debt for a lower interest rate

If you’re paying debts to multiple creditors, you might be able to obtain a lower interest rate by consolidating your debt. You’ll also only have to make one payment every month, making it easier to manage and decreasing the chances of missing a payment. You can consolidate your debt by obtaining a loan large enough to pay it back, or by transferring debt to a business credit card with a 0-percent introductory APR.

Of the two, a loan is the safer option.

You’ll have one set monthly payment throughout the term of the loan, whereas 0-percent APR credit cards go up in interest after that introductory time period (which typically lasts between 12 and 16 months, depending on the card). When you have a credit card, there’s also the temptation to continue putting new charges on the card, which you can’t do when you take out a loan.

Transferring balances to a credit card makes sense if you’re confident that you can pay off all your debt within the introductory period, as you won’t be paying any more interest. Just make sure that you choose a credit card that also has a 0-percent introductory APR on balance transfers.

5. Renegotiate your debt

Often, all you have to do is communicate with your creditors to work out a deal with them, whether that’s an extended loan term to lower your monthly payments or a settlement where you pay less than what you owe. Inquire about hardship programs, as creditors might have these available for those in difficult financial situations.

Keep in mind that creditors want you to be able to pay them back.


Defaulting on a loan or credit card bill isn’t only bad for you, it’s bad for them, because they’ll need to spend time and money trying to recover your debt. If you contact them, you might be able to obtain a deal that works for both of you.

6. Keep your foot on the gas

One of the biggest mistakes small business owners make when faced with debt is slowing down their business. They become stagnant and risk-averse in an effort to avoid any further debt.

Don’t miss an opportunity to expand into a new market or roll out a new service just because of your financial situation.

A calculated risk could result in a significant increase to your business’s monthly income, helping you pay off your debt faster. Continue to move forward with your business and don’t lose sight of your goals.

Pick and commit

The most important part of reducing your debt is realizing that you can’t simply continue what you’re doing. If you’re not making progress, those interest charges are going to climb higher and higher. The first step in fixing your financial situation is finding the debt-reduction strategies that are right for you. After that, it’s all a matter of committing to those strategies long term.

The above content should not be construed as legal or tax advice. Always consult an attorney or tax professional regarding your specific legal or tax situation.

Image by: frankieleon via Visual hunt / CC BY

Roman Shteyn
Roman Shteyn is the CEO and co-founder of RewardExpert.com — a free service that helps people maximize their miles and points to earn free travel. Roman has over two decades of experience in the credit industry and has helped decipher rewards programs for both businesses and consumers. Consumer credit advocacy is Roman's personal passion. A better informed public leads to more responsible use of credit cards, an area he has been involved in since the early ‘90s. As a consumer advocate, Roman frequently writes on credit-related issues, personal finance, small businesses trends, business travel, loyalty programs, and money-saving tips for both consumers and businesses. His professional focus has been on SEO and paid online marketing with a focus on analytics, metrics and campaign optimization using Big Data.