It is typical of entrepreneurs to accumulate all resources and put it into the startup that can help to convert their dreams of becoming big into reality. People from all walks of life accumulate debt as they progress in their life’s journey and more so if you are an entrepreneur who does not mind borrowing from several sources for their dream startup. While the prospects of starting up a business look exciting, entrepreneurs who have to lead a hectic life have to avoid the pitfalls of handling too much and too many debts. Debts can be stressful at times especially if you have multiple lenders and inability to manage debt-related stress can result in financial chaos.
Entrepreneurs do not have any steady monthly income as the salaried class. In the absence of a fixed monthly income, the stress of managing debts increases many more times. Entrepreneurs do not mind to go all out in garnering funds for starting up business and remain exposed to the threats of mismanagement of debts that can take a toll on business. Although it would be ideal to stay away from debts, the ground reality would never allow you to achieve it. However, you can take measures in improving debt management so that debts never becoming overwhelming. How you can proceed in the direction of streamlining debts and avoid the nightmare of drowning in debts will become clear on reading this article. In the process, you should be able to take your business forward for accomplishing the goals of growth.
Do you need a loan at all?
Loans from banks and financial institutions might take some time, but if you have the right documents to back up a sound business proposal, it should not be too much difficult to get loans. Before deciding to take a loan, weigh all options and most importantly consider your repayment capabilities in the long run. The tenure of loans runs into several years, depending on the amount and since business loans are usually big, you should be ready to carry the burden with ease. Moreover, think if any other feasible funding options like crowdfunding or startup incubators could work better for you.
If you decide to take a loan, ensure that the interest rates and payment terms suit you in the best way. Determine how the loan will impact your budget and cash flow and consider the type of loan – unsecured or secured loan. When you have found the right loan and are confident of paying it back, you can take the next step to create a budget.
Make provision for a loan in the budget
Since you would be taking a loan, make arrangements for payment on long-term that reflects in the business budget. That is only possible when you have a strategy for paying back the loan with an assured source of funds kept aside for making a timely monthly payment. How you can allocate funds for making loan payments depends on your budgeting skills.
For creating a budget, you must first consider your income sources, determine the fixed costs, and then look at the variable costs by reviewing the items that fluctuate every month. Try to list all one time spends that you can predict and keep some money aside for it. Now use the numbers that you have finalized for all parameters to create the budget.
Bite as much as you can chew
Acting with restraint in availing loans is the secret of good debt management. In simple words, you have to be very judicious when you are pumping money into the business by determining how pressing is the need and what benefits you would derive by putting extra money into the business. Work out the kind of payback you expect from the extra money pumped in and only when you are sure to recover more than you borrow that you should think of borrowing.
Do not just borrow even if money is readily available because after all, you have to pay back all loans on time. Avoid the lure of credit card debts and any other additional debt that could build unwanted stress not only regarding the number of lenders but also the quantum of total borrowings. Always refer to the budget before taking loans and give the highest emphasis to payments and managing several lenders with ease.
Arrange for some additional income
Your startup would make a gradual start as it takes time to gather momentum before you can start earning profits. You cannot expect to earn profits from the first day, and the most optimistic approach is to be happy if you can cover the expenses only from the beginning. To prop up finances, you can think about earning something extra by looking beyond the business operations. You can consider launching an affiliate scheme for your business or selling some unused items that bring in money. The additional funds would help you stay afloat with debts that you can pay back without much concern. In simple words, do whatever you think necessary to keep your credit scores good by servicing the loans on time.
Consolidate your loans
While arranging for money to pay back loans without defaulting should give you some satisfaction of dealing with debts confidently, the number of creditors could be a cause for concern. Managing multiple creditors is not at all easy as you have to monitor several loan accounts and make payments on several dates every month. How you allocate funds to all loan accounts with precise control and timing is what matters most in managing debts efficiently and more often than not it can become quite unmanageable.
In such situations, the best solution is to consolidate debts under the guidance of professional debt managers from companies like national debt relief so that you have just one lender to deal with. Since you have made provisions for funds already, making payments on time to the single lender becomes a breeze. Debt consolidation gives you complete peace of mind and puts you in the driver’s seat in all matters related to debt management.
Hemant is Digital Marketer and he has 3 + years experience in SEO, Content marketing etc.