BUSINESS BANKING: How to Manage Corporate Debt

By Joel Cuttiford

Corporate debt can be a serious hurdle.  In fact, it’s so serious that companies value their capital structure based on how effectively they manage their debt.  In today’s economy, it can be difficult for businesses to emerge from the red, even when profits are improving.  Here are some of the most effective ways to manage corporate debt for security and growth. 

Revisit your budget.  If debt continues to pile up, then it is highly likely that the company’s current budget is not working.  Redesign your budget based on the business’s current financial situation.  Many companies fail to do this when faced with debt and continue to plan their year around outdated figures.  Be sure to devote a reasonable portion of the budget to variable costs, and when possible, pay off more than the minimum amount required for debt payments.

Prioritize your payments.  Handle the business’s highest interest rate debt first.  This generally equates to concentrating your efforts on paying down credit cards.  While you’re at it, be sure to review your current interest rates.  If the interest rates on your business loans are higher than current rates, consider refinancing.

Speak to creditors.  Financial advisors claim that it can’t hurt to address your financial situation with creditors.  Some may have a hardship plan in place that could provide better payment terms.  If one isn’t offered, request one.  But whatever debt reduction plan you agree to, be sure that you’re able to meet the terms.  The worst thing a business owner can do when in debt is to set up a reduced payment plan with a creditor and default.

Negotiate with suppliers.  Businesses everywhere are overpaying for their supplies, especially at the corporate level.  Encourage asset managers to approach suppliers for discounts, particularly those ordered in bulk.  Draw on past payment history or quotes from other suppliers when negotiating extended payment terms.  If that doesn’t lower costs, enlist a team or individual to find suppliers with better rates.

Rethink your office space.  If you are not utilizing all of the space within your building, consider subleasing unused space.  Entrepreneurs and startups are often looking for small spaces with inexpensive rates to set up shop.  Moves can be costly, but if it will save your company a considerable amount of money, it might be worth it.

Cut unnecessary costs.  A business needs to know exactly how it got itself into trouble in order to get out of it.  Identify the aspects of the business that led to the debt and eliminate the possibility of future accrual.  You can’t pay off your current debt if you’re acquiring more, so be additionally careful about further spending.  If your expenses are too high, take stock of those that are necessary and those that aren’t.  Another way to free up cash for debt payment is selling unused equipment.  Many businesses have office equipment collecting dust that is being kept for later use.  If your company doesn’t need it now, sell it.

Utilize creative and cost-free marketing.  Increasing your marketing—particularly through inexpensive means—can only help your business bring in more money when you need it the most.  Developing relationships with local media or joining organizations to enhance your networking are effective ways to expose your brand.  Social media has made this easy for businesses, and in these tech-heavy times, it is crucial for a business to have a strong presence in the social media sphere.

Meet with your banker.  Your banker has your company’s investments and interests at heart.  They can be a great resource for ideas to help your business.  Make an effort to familiarize your banker with your industry and discuss your financial goals or concerns with them.  Your banker can potentially facilitate introductions to vendors, suppliers and other contacts that may be of use to your business.  These introductions may be helpful during difficult economic times, when other businesses may be looking to pool resources.

Seek outside counsel.  If your business does not already have financial advisors that can help you strategize to reduce and pay off your debt, enlist the help of an organization that has the resources and expertise to assist you.  While small businesses qualify for help from non-profit organizations, larger companies often have to invest in financial counseling services.  Partners or affiliates may have access to services or resources that your company may not.


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