Are you in debt? You can improve your finances with a little bit of hard work.
Engage In Research
Prior to going after a loan, you need to do some research. Figure out what your debt coverage ratio is before you do anything else. That can help you figure out whether you have the resources to pay the loan back or not. In addition, the debt coverage ratio will be examined by the lenders and will help them as they figure out how they want to structure your loan.
It’s actually not that hard to come up with the debt coverage ratio. Take your net operating income and divide that number by the interest and principal of the debt. What is a “good” ratio? Banks want to see a number that is no lower than 1.15. In particular, if you have a number that is below a “1,” you should look into how you can earn more money.
You may want to get the most money possible, but there is no need to be overambitious. If you calculate your debt coverage ratio, and the results are not very favorable, you should not get the loan. You don’t want the added stress of trying to make payments that are not really in your range.
Manage Debt with Increased Cash Flow
No one wants to owe money. Businesses, in particular, should work hard to get their debt down to a manageable level. If you want to earn more money, and bring down your debt, there are a few things you need to know.
Productivity is key. Figure out how to make your daily operations more efficient. Come up with new ideas on how to improve cash flow. Think about offering training to your workers or invest in new technology that will help your business run better. It is also a good idea to think about starting a new marketing campaign. You will have to spend more money initially, but if you do a good job, you should make more money in the long run. You can use that money to ease some of your debt.
Speak with your vendors. If you can come up with some new terms, you may be able to positively impact your cash flow, and consequently, help with the debt situation. There are suppliers that will let you pay up to two months after you get a shipment. You can also ask if the supplier offers a discount for paying the bill early. Some businesses have been able to save as much as ten percent this way! In addition, be on the lookout for new suppliers that can cut you a better deal. You have to constantly think about your bottom line.
Focus on your inventory. Inventory that isn’t moving is going to hurt your bottom line. Make sure you pay attention to this area of your business, and perfect the art of only buying what you need to satisfy demand. If you can, partner with suppliers that allow for rights of return on anything you don’t sell or consignment inventory.
Think About a Fixed Rate Interest Loan
Interest rates on car loans, lines of credit, mortgages and credit cards are only expected to go up over time. As that happens, businesses that have a lot of debt, as well as variable loans, will be vulnerable. It may be a good idea to look into a fixed rate interest loan now, while the rates are still low. The lender for these loans gives their word that the loan will stay at one rate for a certain amount of time.
A Individual Voluntary Arrangement (IVA) could also work and is an agreement with your creditor to pay off all or part of your debts through regular payments over a period. It can be a flexible way to sort your debts and well worth considering.
Get Lower Interest Rates
Credit card rates are very low right now. Still, the average APR is just under 15 percent; that is a lot of money! While it is fine to use a credit card, in a perfect world, you don’t want to carry that balance over from month to month. In doing so, you avoid paying interest on your purchases. Here are some tips to get lower rates.
However, if you are like many other businesses, you like have some level of credit card debt. It is best to pay off the card with the highest interest first. That is not always easy, however. Another option may be to complete a balance transfer. This involves putting all your debt onto one card, the card that has the lowest possible interest rate. You will get charged for a balance transfer, so you have to make sure it is worth it before you do it.
You may just want to call the credit card company and ask for a lower rate, though. Depending on your credit, and your history with the company, you may be able to secure a better rate this way. Even dropping it down by one percent can make a huge difference over time.
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