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If you own a small business in San Diego, financial planning is essential. Being able to effectively manage debt can be an important success factor for small business owners. According to statistics compiled by the United States Small Business Administration, more than half of the companies that fail within their first three years of operation were overwhelmed by outstanding debts. Startup entrepreneurs who are not able to secure capital often seek commercial loans and other types of debt to get their business off the ground. The issue with this approach is that it can get addictive. Once you get approved for your first business loan, other lenders will bombard you with offers, especially if your company ends up with a Dun & Bradstreet number and credit profile. Debt is part of doing business, but here are four ways to manage it more effectively.

1. Protect Against Risk

One of the reasons many small business owners succumb to debt is because of unexpected losses that require them to part with cash and fall behind on their agreed payments. Operating without adequate insurance coverage is a risk you shouldn’t take. Contact your insurance agent to discuss policies with low deductibles that will not wipe you out. Do not assume the minimum coverage required by commercial lenders will be sufficient for your company.

2. Increase Your Marketing Efforts

You should only get into debt if you are willing to expand your business and boost your revenue. Becoming complacent is the last thing you should do when signing loan documents. If a marketing plan is already in place for your company, sit down to review it and figure out how it can be augmented. If you do not have a marketing plan when you are given a loan, focus on creating one that will generate enough revenue to create a reserve at least three times larger than a monthly installment payment. 

3. Look for Refinancing Opportunities

Try to stay away from inflexible deals with balloon features or prepayment penalties. You need to have some freedom to shop around and entertain offers from other lenders who might refinance your debt. If you are trying to court investors, they may not like the idea of a company that is tied up with rigid debts. It is always better to apply for SBA loans instead of requesting credit from aggressive subprime lenders.

4. Seek Credit from Your Suppliers

When you need equipment or tools for your small business, check with your providers first. This is a good time to inquire about credit programs and extended payment terms. Even if you are not able to secure credit from your suppliers, you can always ask for discounts for certain bulk orders. Quite a few B2B suppliers will compete, and they will be happy to offer comfortable financing so they can forge a good relationship with their clients.
If you’re having difficulty managing your company’s debt, you may need to consult with a financial planner. Jan Gleisner has over 16 years of experience in the financial planning industry and has been successful in helping a wide array of businesses achieve their financial goals. Reach out to Jan Gleisner today to learn more.