According to The Balance Small Business, for the first five years after the Great Recession, startups had a tough time securing credit. For this reason, much-accrued credit card debt in order to pay for customary startup costs, such as securing an office lease, paying to turn on the utilities or making the initial inventory purchase. In fact, even micro-business averages around $3,000 in startup costs.
The Problem With Business Credit Card Debt
Unfortunately, business credit cards currently have interest rates in the mid-teens. This makes them very hard to pay off. Also, servicing interest is costly. This stifles the cash flow that most startups need in order to take off successfully.
Here at Golden State Partners, small business owners ask us for the best strategies to get out of high-interest credit card debt. The following are some of the best ideas.
Look at Your Credit Card Agreement
Some small business owners were not aware when they took out their small business credit card that most credit issuers have a clause in the credit card agreement that they are personally liable for any default. If you fail to pay off the credit card, your personal credit may suffer, even if you have an LLC or a corporation.
Liquidity is Key
Nerdwallet suggests that it is best for small businesses to get out of debt within their first year of operation. Otherwise, they risk having liquidity issues that could spell failure for the enterprise.
Make a Budget
Even if you have a micro-business, you need to take a strict accounting of all of your income and expenses and see where the latter can be reduced. Any money you can save can go towards paying off that credit card principle.
Examples of places that companies can save money include reducing the office space they are leasing or sharing office space and/or other services with companies that provide complementary services.
Also, see if you can make a greater payment each month on the credit card or other business debt with the highest interest rate. Pay just the minimum on the rest of the cards. The goal is to get the high-interest rate cards paid off first, saving you money.
Consider a Zero-Interest Rate, Balance Transfer Credit Card
If you have good credit, and you can realistically pay off the credit card in 12 to 18 months, consider applying for a zero-interest, balance transfer credit card. During the introductory period when you are not servicing the interest rate, pay off as much as you can. You do need to be aware of what the interest rate will be after the introductory period, though.
Consider a Debt Consolidation Loan
Entrepreneur Magazine suggests that if you cannot realistically pay off the credit card within a year and a half, a debt consolidation loan would be a better bet. Debt consolidation loans have lower interest rates than credit cards. They also have a fixed period of time within which you will pay off the loan. With credit cards, it almost seems they prefer you will never able to pay them off. Also, because the debt consolidation loan comes with a lower interest rate, your cash flow will improve.
At Golden State Partners, we are here to help you with solutions to your high-interest credit card debt. Call us today to find out how to free your startup of credit card debt.