14 Options If Your Small Business Can't Pay Its Bills | Nav (2024)

The past few years have been rough for many businesses. Your small business may have trouble paying its bills due to a slowdown in revenues, higher than usual expenses, inflation, cash flow problems, any number of business challenges.

Here are 14 options entrepreneurs can consider if their business can’t pay its bills.

1. Assess Small Business Finances

The first step in any financial crunch is to understand what’sgoing on financially in your business. If your bookkeeping is up to date, you can review financial statements like your profit and lossstatement, income statement, and accounts receivable aging report (A/R report) to get anunderstanding of where things stand.

If your financials are not up to date, consider hiring a bookkeeper who can get everything into your accounting software. If that’s not feasible, pull out your business checking account and business credit card statements, and any other relevant documents, to assess your business finances.

Tip: Need help? Small Business Administration resourcepartners like Small Business Development Centers (SBDC) and SCORE provide free mentoringfor small business owners, and services are free or low cost. Findlocal help here.

2. Review Small Business Debts

Next make sure you have a complete picture of your small business debt. You’ll want tocreate a schedule of your debts that shows:

1. How much you borrowed
2. Daily, weekly or monthly payment amounts
3. Annual Percentage Rate (APR) or factor rate
4. Remaining balance
5. Remaining time to pay
6. Collateral/UCC filing for secured loans
7. Personal guarantees, if any

This information will be helpful as you review your options in the following steps. It can also help you in prioritizing your debts. For example, debts with personal guarantees put your personal assets at risk of you default and so they may be more urgent.

3. Better Cash Flow Management

Remember those financial statements we discussed earlier?You can use them to investigate options to improve cashflow and free up more money to use to pay debt.

This may mean cutting variable expenses, renegotiating contracts with suppliers orfinding new lower-cost options, speeding up how quickly you collect invoices by offeringdiscounts or faster payment, raising prices, cutting less profitable products or services, andmore.

By delving into cash flow management, you may find bothshort-term and long-term opportunities to improve your business financial health.

4. Consider Short-term Financing

If you have a truly short-term need for cash, find out whetheryour business is able to access any of the following forms of financing:

• Lines of credit
• Invoice factoring or financing

Both of these types of short-term financing may help improvecash flow if your situation is really temporary.

It’s best to leverage financing when you have a clear plan forhow it will help you make money, though. So be cautious about new debt. You don’t want to diga deeper hole that’s harder to climb out of.

5. Negotiate With Your Suppliers and Vendors

Your suppliers and vendors are well aware of what is going on and may be able to work withyou to negotiate lower payments or longer payment terms for a period of time. They will want tokeep your business in the long run, and may be flexible about deferring or accepting reducedpayments.

Make sure you understand what will happen if you renegotiate terms. If you make partial payments, will those be reflected on your business credit reports as late payments? (If so, that may lower your business credit scores.) Will you have trouble getting supplies on credit in the future from that vendor?

6. Business Credit Card Balance Transfer

Find out if your business credit cards offer low-costbalance transfers. You may find these offers under the “offers” or “promotion” tabs on youronline account, or you can call your issuer. You can also get a new business credit card with a balance transfer.

If you can’t find a viable option, and you have a personal creditcard that is paid in full and offers a balance transfer, you may consider whether it makes senseto use that. (It’s best to avoid mixing business and personal debt on the same card.)

Another option is to consider a 0% intro APR credit card for necessary business expenses to give yourselfmore time to pay while you tackle your debt.

Be careful: once the intro period expires, the new rate couldbe much higher.

7. Make Lower Credit Card Payments

While it’s good financial advice to pay your business creditcards off in full to avoid interest, there are times when making minimum payments can help yourbusiness get through a time of tight cash flow. If you go this route, make sure you understandthe interest rate you’ll be charged, and be very careful to use those credit cards only foressential business expenses. Also, understand that high balances on credit cards that report to the owner’s personalcredit may lower your credit scores.

It’s also important to note that if you don’t make your minimumpayment on your credit card, you will be charged a late fee and interest. If you have a business credit card, your interest rate may immediately go up to the defaultrate on your outstanding balance. (On a consumer credit card, you generally must be more than60 days late before your rate can increase.) If you can’t make your minimum payments, checkout the advice below.

Read: What To Do if YouCan’t Pay Your Credit Cards.

8. Consider Business Loan Refinancing

If you have business debt with high interest rates or payments,find out whether loan refinancing or business debt consolidation isan option. It may or may not be, depending on your credit, income and other qualifications. Butit’s worth exploring.

If you are able to refinance debt, you may want to choose tofocus on refinancing the debts with the highest interest rates first, or tackle the debt with themost onerous payments (daily payments, for example). Business loan refinancing may only be available to cover part ofyour debt, so you may want to focus on the ones that are causing the most financial pain foryour business.

9. Talk toYour Lenders

Your lenders don’t want your business to default on payments.They may be able to work with you to restructure your small business loans orfinancing temporarily. If you’re facing the prospect of not being able to make payments, you’llwant to let them know what’s going on and see whether they can accommodate you with lowerpayments for a period of time.

If you have an SBA Covid-19 EIDL loan, you may be eligiblefor a hardship accommodation.

10.Crowdfund

If your business has loyal customers but you’re struggling,your customers may be able to help with crowdfunding. There are several different types of crowdfunding for business, and mostdon’t require good credit.

But crowdfunding requires good marketing so you’ll need toput time and effort into crafting a successful crowdfunding campaign. While some businesseswere able to crowdfund donations during the pandemic, today you’ll likely need to offersomething valuable to your audience, whether that’s a unique product in a rewards-basedcrowdfunding campaign, or even equity through an investment crowdfunding campaign.

11.Renegotiate Space

If you rent your space, find out whether it’s possible torenegotiate your business lease. If that’s not an option and you can’t afford to stay, explore thefinancial implications of terminating your lease. Some landlords are able to be more flexible thanothers, but if it is an area where they are unlikely they will be able to easily rent that space toanother business, they may work with you to avoid having it sit empty.

12. Consult a Credit Counseling Agency

Non-profit credit counseling agencies, such as those who aremembers of the National Foundation for Credit Counseling, can help you evaluate your situationand suggest debt relief options. You may be eligible for a modified debt payment plan on someof your credit cards (personal credit cards only). Business consultations are available if you areself-employed. (Most small business owners operate as sole proprietorships and may haveused personal credit cards in their business.)

Visit NFCC.org or call 1-800-388-2227 for a free consultation.

13. Consider Debt Settlement

When you fall behind on payments, your debt will often besent to debt collection agencies. At that point, you may be able to negotiate lower pay-offs toresolve the debt.

With debt settlement, you settle your debt for less than the fullamount owed. This small business debt relief option is not without drawbacks—including latefees and interest, or even potential lawsuits from creditors—but it does work for someindividuals and small business owners who can’t pay their full debts but for whom bankruptcy isnot a good option.

It is important to understand that there is no guarantee thateach of your creditors will settle. Some borrowers start the debt negotiation process only to findthey need to file bankruptcy.

14. Talk With a Bankruptcy Attorney

Small business owners may find business bankruptcy an option for restructuring debt, liquidation, or to officiallywind down a business with bills that can’t be paid back. Some types of bankruptcy (Chapter 11or Chapter 13) may allow the business to continue to operate while making smaller payments.Chapter 7 can help a business close and avoid protracted legal battles over unpaid debts.

This can be a scary step. But keep in mind that consulting witha bankruptcy attorney doesn’t mean you will or must file for bankruptcy, and it may provide youwith helpful information about what legal actions you may face if you or your business can’t payyour debt in full.

• Can your business assets be seized?
• Can you lose personal assets like your home?
• What are your options if you are sued for nonpayment?

If you’re contemplating bankruptcy, or trying to avoid it, it’s agood idea to get professional advice.

If your business is struggling due to economic conditions, explore your options sooner rather than later. The sooner you do, the more options you’ll have.