Business Credit Center

Credit and loan repayment problems

Learn how to get back on track with your small business credit or loan repayments.

Published: August 08, 2016

Small businesses may fall behind on credit card, loan, or line of credit payments for a myriad of reasons, but one of the most common causes is insufficient cash flow. If you've gotten off-track with payments, it's best to take the following steps, then communicate with your lender to work toward a solution.

Assess the situation

The first step to understanding the problem is gathering all the relevant information.

  • What expenses do you have?

  • How many accounts?

  • Which ones are past due?

  • How much do you owe?

  • When are those payments due?

  • How many accounts are past due and by how much?

One good way to get a complete picture is to request, and then review, your credit report. In addition to spelling out all your liabilities, it will also provide an opportunity for you to review your credit record to make sure it is accurate.

By carefully analyzing this information, you'll have some hard numbers about your total debt and your monthly outflows to better manage credit.

Reducing expenses and increasing income

Reducing debt may call for some hard decisions, but it's important to explore every possible avenue. Can your business cut expenses in order to make debt payments? Take a look at monthly expense reports, find your biggest expenses, and determine whether any cuts can be made. As a rule of thumb, review any expense that doesn't directly lead to revenue, especially if you are having difficulties making payments to your lender.

After cutting expenses, explore opportunities for increasing income and cash flow. Look at your product and service, and ask whether you're charging enough for it. Will the market bear a price increase? If not, can you broaden and deepen your customer base in order to make more sales?

Raising capital

Reducing debt may necessitate raising additional capital. Look for investors who can inject capital into the business and decrease your debt-to-income ratio. You may even think about tapping into personal resources, like savings or property equity, in order to reduce business debt.

Beware of obtaining additional credit, even if from friends and family, because rather than reducing overall debt, you will simply be shuffling the debt around.

Talk to your banker

If you work with your lender, it may be possible to modify the terms of the loan, reduce payments, or suggest other steps that you may not have thought of. Don't be afraid to communicate your situation. Remember: Lenders want borrowers to make their payments. They will likely work with you to help make that happen, offering information and resources wherever possible.

The longer your accounts are overdue, the more serious the consequences become. So, it's important to address issues early. Too many late payments will impact your credit reports and may prevent you from getting financing in the future. Take a long look and make an honest assessment of your business, then work with financial professionals to restructure your business in a way that will let you pay your debts and prevent further issues down the line.