Marketlend Academy: Tips to pay off business debt
While some debt is necessary to fund a business, if you’ve ever found yourself turning to a personal credit card to stay afloat… it’s time to stop for a moment and consider your options.
Here’s a sobering statistic: Last year, a survey of 1,200 Australian SMEs showed about two thirds of small business owners rely on credit card debt to maintain cash flow in their business. Just two years earlier, the Australian Bureau of Statistics found only a third of SMEs would use credit cards to maintain cash flow.
That means the number of businesses turning to credit cards to keep their businesses afloat has doubled in two years.
While there’s a certain convenience to using the credit card, the ensuing interest rates can put a business under even more financial pressure. Instead, here are a few tips to smooth out cash flow, and start to pay off business debt in your firm.
- Are your costs too high?
Reevaluate your regular expenses. Are you paying too much for supplies or materials? Research new suppliers and see if you can get similar materials elsewhere for less.
You could also reduce your office space and sell off equipment you don’t need or no longer use, or look into reducing your energy consumption.
This will result in savings you can put toward reducing your debt, or for maintaining cash flow in lieu of entering into even more debt.
- Can you buy now, pay later?
When looking at supplies and materials, have you considered services like Marketlend UnLock? Launched late last year, UnLock is similar to consumer ‘buy now, pay later’ models like Afterpay, except it is designed for small businesses.
In effect, Marketlend pays the supplier upfront for the materials, then gives your SME extended credit terms to pay the amount back – typically 90 days instead of the usual 30-day time frame.
This longer credit term allows businesses more time to repay, thereby smoothing out cash flow.
- Can you prioritise paying off your debt?
If you’re going to owe money, then you should know how much you owe and to whom. If you’re accumulating so much debt that it’s becoming challenging to keep track of what payments you must make every month, it’s time to take stock of your debt in order to prioritise your payments. Generally, when looking at loans it’s best to pay off those with the highest interest rate first.
Also consider consolidating loans if possible. Not only are consolidated loans easier to manage, as there are less people to pay, but you can typically find a lower interest rate – depending on the circumstances.
Start Today
This is by no means an exhaustive list, butit’s the three best places to start. If the debt your business carries is slowing you down, the best thing to do is take steps to pay it down today. Even if those steps are small at first, they’ll compound into giant leaps over time.
Marketlend Academy: How are your loans different from other SME lines of credit?
Lending to SMEs to support sustainable growth is what Marketlend CEO and Founder Leo Tyndall is passionate about, and he wants his company to lead the way as a responsible organisation that treats lines of credit with care and delivers transparency. Click to video to here more or scroll down for a transcript of his latest chat.
So when you say giving them a line of credit, and pay them straight, no, we don’t, we pay their suppliers. So, we pay their suppliers, and we pay their suppliers based on invoice of the verified and checked, and those invoices are then presented to us, and then we pay that supplier, and then when they actually get the goods, they then sell them, and obviously then they pay us in the 90 days after that.
So, and even if our line of credit, uninsured which is a product, which is a little bit similar to like a loan, but it’s a limit, we pay the supplier. So, we allow them to pay suppliers, or services, and what we provide is a line of credit. It’s a little bit similar to an overdraft: we give them a line of credit, it’s renewable, and reviewable every 12 months, they pay it on time, investors are happy, now roll the facility over, and they can keep it going. And, the point being, is that they can then run their business knowing that if they get a big order, they’ve got this line of credit they can use, if they don’t have many orders, they can close the line down, or can reduce it, so there’s that flexibility there.
And that’s not what they’ve got when they go and get personal loans, or I call them personal loans, but S and E loans, ’cause they’re just pure loans.
Yeah, correct. yeah, and the other reason why we do that, is that we don’t really like the idea of giving people pure cash, because it could be used for alcoholism, gambling, and a few other, we’ve seen one before, where they present an invoice and we went to pay it, but before we paid the invoice, we looked at these bank statements and noticed that he was actually gambling. So, we said, “Look, we don’t think we’re gonna pay that.” Because, obviously, we look at their bank statements, and he was probably gonna use the cash that we paid for the goods, with his own income so he could do some gambling or whatever he was gonna do.
So, we look at their bank statements, so we have a number of steps, so, first thing we do is we actually look at their ability to repay the debt for debt servicing ratios, and they’re financials, after their financials we give their bank statements, we then review their bank statements and look at the entries on the bank statement. We have a team member whose only job is to look at those bank statements, and what he’ll do is, he’s a risk officer, and he’ll identify any unusual activity, but also the ability to repay, because the financials may not match the bank statement as well.
And then in this case, what we did was we saw that there was a number of gambling sites that were being paid, and even though we weren’t providing him the cash, we identified that that was a risk, and we didn’t want to lend to him.