How To Avoid Debt In Small Business

If you are a small to medium-sized business enterprize (SME) you have probably had

to borrow money from individual lenders, banks, or maybe you have financed your expenses using credit cards. The problem is that these business loans or use of credit come with interests rates, and they can be high. There are also pre-determined periods of time within which the you have to repay the creditor. And if you are unable to repay the lender, your credit scores suffer, and your access to future loans diminishs. Plus in worst-case scenarios, you could even experience loss of collateral and bankruptcy.

There is one other alternative financing solution, and it is known as small business factoring. If your small business is already in debt, there are some ways to make sure the situation doesn't get any worse. It is really important to prioritize your secured loans. Make sure these payments are made on time, because every month a bank can and will call in the lien on your assets if you do not pay them back as promised. And just in case you don't know, failure to pay a mortgage, secured loan, or car payment can result in foreclosure or in the case of an automobile, repossession.

The next tip is to deal with past due debt. If you do not address amounts that have already been billed and are now past due, the amount you owe will just keep on increasing. Late charges and additional interest will be applied to your balance, increasing the amount of money you owe over time. Actually, addressing your overdue bills is one of the most important steps you can take in repairing your financial status and rescuing your credit rating.

Most collection agencies are willing to settle debts by negotiating a settlement between you and the originator of the loan. They typically use reduced payment plans, so don't incur more debt by making only minimum payments -- this only increases the amount of money you owe in the long run.

Don't use credit until you have paid off your current debt. In order to avoid borrowing moneytead try invoice factoring, a practice wherein a business sells its accounts receivable invoices to a third party at a discount in exchange for immediate cash with which to finance continued business. It is a method used by businesses to cover short-term cash needs during periods in which these needs exceed cash flow. It's not the business' credit that's up for inspection but rather the debtor's (i.e., the party named on the invoice) and there's nothing to repay.

History tells us that early merchant bankers in Europe used factoring and it has recently making a come-back in popularity. The economy has spurred factoring because so many small businesses today are struggling. Because a typical bank loan is based on your assets you must have the ability to pay the loan back. However, when you use a factoring company the funds are virtually unlimited, as they are based on your credit-worthy customers.

Factoring can be a debt-free solution.Another good thing is the more invoices you have, the higher your credit line will be. Debt can sometimes be a tool to grow a business or meet short-term financial needs. But often the risks outweigh the rewards. Small businesses that turn to small business factoring can reap the reward without the risk

by: Kristin Gabriel

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