After more than a year of navigating movement restrictions, mandates and Covid-19 protocols, small-business owners are starting to see a light at the end of the tunnel. But the debt many needed to take on to weather the pandemic still casts an ominous shadow.
In 2020, 79 per cent of small employer firms (up to 499 employees) in the US reported having outstanding debt, up from 71 per cent in 2019, according to a February 2021 report by the Federal Reserve Banks. Of the firms that applied for financing, 58 per cent said they did so to cover operating expenses such as rent and payroll, compared with 43 per cent in 2019.
Paying down this pandemic debt can help business owners rebuild their companies. The following tips can help you eliminate your business debt faster, while saving money on costly interest in the process.
Create a debt repayment timeline
Being strategic about your debt will help you pay it off more quickly, says Chris Woods, founder of LifePoint Financial Group, a financial planning company.
“People tend to just throw money at [debt]. Maybe they’ll pay a little bit extra this month or that month,” Mr Woods says. The better approach? Create a detailed repayment plan.
Take a full accounting of what you owe, including interest rates and repayment terms for any business loans or credit card debt you’ve accumulated. Note grace periods and deadlines.
Then, set a reasonable (read: achievable) timeline to pay off your debts and start picking them off one by one. If you’re juggling multiple loans or credit cards, funnel any extra payments to the debt with the highest interest rate, says Zach Reece, owner and chief operating officer of Colony Roofers.
“This is your most expensive debt and you’ll get the highest cost savings from paying this debt down most aggressively,” adds Mr Reece, who is also a certified public accountant.
This [credit cards] is your most expensive debt and you'll get the highest cost savings from paying this debt down most aggressively
Cut expenses, increase revenue
“You can’t pay down debt with money you don’t have,” Mr Reece says.
There are two ways to find more money: Trim your budget or boost your income.
To jumpstart your revenue, re-examine your business model and look for opportunities to reach more customers or expand your sales footprint. You can also take steps to front-load your cash flow. Renegotiate contracts to request payment upfront or offer incentives to customers who can pay six or 12 months in advance.
To cut expenses, scrutinise your budget. Look at things such as advertising, subscriptions, professional memberships and even office space. What can you cancel, pause or downsize?
“Operating leaner will help you buffer downturns and create more cash flow so you have space to pay down that debt,” says Ken Alozie, managing director of Greenwood Capital Advisers.
Refinance, consolidate
Make your debt less expensive by refinancing. Depending on your loan and business history, you may be able to access a better rate, a lower monthly payment or more favourable repayment terms. The same applies for any business credit card debt you accrued, Mr Woods says.
“Look at opportunities to move that debt to another card or lender to have less interest accruing,” Mr Woods says. “This is something everyone should look into, especially if you’ve been on time with your payments.”
Juggling multiple loans? Consolidate them into a single small-business loan, preferably with a lower interest rate and monthly payment. An added bonus: You’ll have just one payment to one lender.
Tap into free business resources
Running a business can be all-consuming. Managing business debt can be, too. Doing both simultaneously? Something will likely give.
Operating leaner will help you buffer downturns and create more cash flow so you have space to pay down that debt
“A lot of [smaller businesses] are in survival mode and can forget that they’re managing a business and need to interact with clients and look for growth opportunities,” Mr Alozie says.
Connect with volunteer organisations that offers free business mentorship. These organisations send emails with tips, important deadlines and updates, freeing you up to focus on your business.
“Don’t feel like you need to do it by yourself. Plug into organisations that will help you stay on top of it,” says Mr Alozie. “You’ll have more leverage, so you’re not out there on your own trying to keep up to date, while also trying to run a business out of the pandemic.”
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Title: Assistant dean of students and director of athletics
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Favourite team: Bayern Munich
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Favourite activity in Abu Dhabi: scuba diving in the Northern Emirates
Sole survivors
- Cecelia Crocker was on board Northwest Airlines Flight 255 in 1987 when it crashed in Detroit, killing 154 people, including her parents and brother. The plane had hit a light pole on take off
- George Lamson Jr, from Minnesota, was on a Galaxy Airlines flight that crashed in Reno in 1985, killing 68 people. His entire seat was launched out of the plane
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- Jim Polehinke was the co-pilot and sole survivor of a 2006 Comair flight that crashed in Lexington, Kentucky, killing 49.
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The rules on fostering in the UAE
A foster couple or family must:
- be Muslim, Emirati and be residing in the UAE
- not be younger than 25 years old
- not have been convicted of offences or crimes involving moral turpitude
- be free of infectious diseases or psychological and mental disorders
- have the ability to support its members and the foster child financially
- undertake to treat and raise the child in a proper manner and take care of his or her health and well-being
- A single, divorced or widowed Muslim Emirati female, residing in the UAE may apply to foster a child if she is at least 30 years old and able to support the child financially
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Seek professional advice from a legal expert
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You can use the Ministry of Human Resources and Emiratisation’s dedicated hotline
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How Tesla’s price correction has hit fund managers
Investing in disruptive technology can be a bumpy ride, as investors in Tesla were reminded on Friday, when its stock dropped 7.5 per cent in early trading to $575.
It recovered slightly but still ended the week 15 per cent lower and is down a third from its all-time high of $883 on January 26. The electric car maker’s market cap fell from $834 billion to about $567bn in that time, a drop of an astonishing $267bn, and a blow for those who bought Tesla stock late.
The collapse also hit fund managers that have gone big on Tesla, notably the UK-based Scottish Mortgage Investment Trust and Cathie Wood’s ARK Innovation ETF.
Tesla is the top holding in both funds, making up a hefty 10 per cent of total assets under management. Both funds have fallen by a quarter in the past month.
Matt Weller, global head of market research at GAIN Capital, recently warned that Tesla founder Elon Musk had “flown a bit too close to the sun”, after getting carried away by investing $1.5bn of the company’s money in Bitcoin.
He also predicted Tesla’s sales could struggle as traditional auto manufacturers ramp up electric car production, destroying its first mover advantage.
AJ Bell’s Russ Mould warns that many investors buy tech stocks when earnings forecasts are rising, almost regardless of valuation. “When it works, it really works. But when it goes wrong, elevated valuations leave little or no downside protection.”
A Tesla correction was probably baked in after last year’s astonishing share price surge, and many investors will see this as an opportunity to load up at a reduced price.
Dramatic swings are to be expected when investing in disruptive technology, as Ms Wood at ARK makes clear.
Every week, she sends subscribers a commentary listing “stocks in our strategies that have appreciated or dropped more than 15 per cent in a day” during the week.
Her latest commentary, issued on Friday, showed seven stocks displaying extreme volatility, led by ExOne, a leader in binder jetting 3D printing technology. It jumped 24 per cent, boosted by news that fellow 3D printing specialist Stratasys had beaten fourth-quarter revenues and earnings expectations, seen as good news for the sector.
By contrast, computational drug and material discovery company Schrödinger fell 27 per cent after quarterly and full-year results showed its core software sales and drug development pipeline slowing.
Despite that setback, Ms Wood remains positive, arguing that its “medicinal chemistry platform offers a powerful and unique view into chemical space”.
In her weekly video view, she remains bullish, stating that: “We are on the right side of change, and disruptive innovation is going to deliver exponential growth trajectories for many of our companies, in fact, most of them.”
Ms Wood remains committed to Tesla as she expects global electric car sales to compound at an average annual rate of 82 per cent for the next five years.
She said these are so “enormous that some people find them unbelievable”, and argues that this scepticism, especially among institutional investors, “festers” and creates a great opportunity for ARK.
Only you can decide whether you are a believer or a festering sceptic. If it’s the former, then buckle up.
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Name: Hassan Mohsen Elhais
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