Small Business Debt Relief

According to a study conducted by Experian in 2016, the average amount of debt held by U.S. small business owner was $195,000. One useful indicator to measure the proper amount of debt that a small business should carry is the debt to equity ratio, which should ideally fall between 1 and 1.5. However, the ideal debt to equity ratio will vary depending upon the industry, as capital-intensive industries such as manufacturing will commonly require a debt to equity ratio of 2 or higher.

There are two general categories of business loans – secured and unsecured. In the case of secured business loans, a small business borrower will post a specific piece of collateral in the form of a valuable asset – including real estate, inventory, or manufacturing equipment – that a lender can potentially seize (and sell) in the event of non-repayment. With unsecured business loans, borrowers do not put up collateral, but in order to mitigate the risk associated with them, lenders attach higher interest rates to unsecured business loans.

Accounting records need to be updated when a non-recoverable receivable gets classified as bad debt. When a sale is made to a customer who pays with credit, the accounts receivable account is debited and the inventory account is credited. In double-entry accounting, this original entry can be reversed. Alternatively, many businesses set up a bad debt reserve, which is known as an allowance for doubtful accounts. The goal of this account is to offset losses incurred by bad debts.

Revolving debt consists of open-ended accounts, usually with variable interest rates and established credit limits that require monthly payments as a percentage of the outstanding balance. Though such a credit line provides access to capital, the funds take the form of a liability that actually deducts from working capital, which is defined as current assets minus current liabilities.

The debt ratio is calculated by dividing total liabilities by total assets and can be used to describe the financial health of a small business. From a risk perspective, debt ratios of .4 or lower are considered more attractive, while a debt ratio of .6 or higher can make it more difficult to borrow. However, debt ratios are also contextual, dependent upon the industry in which a small business operates.

The typical interest rate for a small business borrower will depend upon a variety of factors including the borrower’s qualifications, the type of loan, and the lender. Small business loans from traditional lenders, such as banks and credit unions, can come with interest rates as low as 4% in the best cases, ranging up toward 13%. For non-traditional online lenders, the best small business loan interest rate will be closer to 7%.

Small business owners can report delinquent debts to the three major credit bureaus – Experian, Equifax and TransUnion – however the small business must first become a customer of the bureaus, a subscriber to its credit reporting services. This may or may not be practical or represent something that the small business really needs. Alternatively, delinquent debts can be reported to Dun & Bradstreet and Experian, who maintain business credit reports.

Penalty APR is typically applied for six months and often is significantly higher than the previous interest rate. Avoiding Penalty APR is yet another reason to consistently pay credit card bills in a timely manner.

Yes, a business can be debt free. This can be accomplished by increasing profits and cash flow, reducing expenses, and managing debt levels. A business can also sell off assets or issue new equity to reduce its liabilities.

There are a few ways to start a business debt free. One way is to bootstrap your business, meaning you use your own money to get started. Another way is to find a partner who can invest in your business and share the financial responsibility. Finally, you can look for funding from grants or loans from banks or other institutions. Whichever route you choose, make sure you have a solid business plan in place to help you stay on track financially.

If you are a business owner and find yourself in debt, United Debt Settlement can help. Our team of experts can work with you to develop a plan to get your business back on track. Contact us today for more information.

There is no simple answer to this question as it depends on the specific situation. In general, however, business debt may affect personal debt in a few ways. For example, if a business is not doing well and is unable to pay its debts, this may have a negative effect on the personal finances of the owners or shareholders. Additionally, if a person has guaranteed a loan for a business or is personally liable for business debts, this may also negatively impact their personal finances. Finally, certain business structures, such as LLCs, offer protection from personal liability for business debts, which can help shield individual owners from potential personal financial repercussions.