Why you shouldn’t set and forget your business debt

By David Jackson

Debt is often the primary means for pursuing a business plan, in the absence of other access to capital.

However, once a business has taken on debt, it can be easy to simply factor this debt into the running costs of the business, and all but forgot about it. But because debt is often a substantial cost to a business, this is a poor strategy. Other costs such as wages, supplies, and leases are often reviewed, so why shouldn’t debt be treated the same way?

Below are five ways to help ensure you are getting the best deal on your debt.

1. Schedule a review

In the everyday hustle of completing the daily to-do list, it can be challenging to carve out the time to review your debt situation. This can be more easily overcome, however, if you have time specifically blocked out to do so.

In my experience, it can pay to schedule time into the calendar once a year to review your debt position. This might potentially be around the same time as another related event, such as tax season, when you have an accurate picture of your overall finances. Others may find it beneficial to schedule it in at the beginning of the year while they are setting goals. The important thing is to find the moment that works best for you – and then make sure that it happens.

2. Re-evaluate

When you are reviewing your options when it comes to debt, it can pay to re- evaluate what you need from your lender. Things to consider can include: frequency of repayments, interest only repayments, locking in interest rates, and making extra repayments. Each business will have different needs, so look at your situation and consider what a strategic debt arrangement would look like. In the current low interest rate environment, many commentators are recommending that it may be valuable to lock in at least a portion of a loan. Take a look at your own situation, and weigh up your options.

3. Talk to an expert 

Once you have re-evaluated what you think you need, I highly recommend speaking to an expert and having a third party review your situation. Your accountant is probably the best person to speak to in this regard, so ask them what they believe might work well for your business.

Their insight into your business or cashflow situation, or even the broader economic environment, may lead to a better situation for you financially. Ask them for a recommendation because they may see something that you missed, or know about a new product that could work better for your situation.

4. Ask the question

If you have an idea about what needs to be changed to make your debt work better for you, call your lender and see what they can do for you. Don’t be bashful when it comes to doing this – be up-front and honest, and simply ask for what you need. Lenders are often able to be surprisingly flexible, and you often won’t receive what you don’t ask for.

5. Pick up the phone

Even if your current lender is able to meet your needs, it may be worthwhile to pick up the phone and speak with another lender or broker. Show them your current lender’s offer, and see if they can beat it. Once again, no harm can come from trying to get a better deal for your business.

Remember lenders want your business. If you have several lenders competing for your business, you are likely to be able to drive a better deal.

David Jackson is the chief executive and founder of FundX, a marketplace invoice-financing platform for SMEs.