Though most entrepreneurs begin their start-up by arranging funds through debt funding, equity funding, loans, or through other less formal sources like friends & family the experience of being in debt can be scary as well as overwhelming.
If managed smartly, borrowing funds can help you accomplish your goals, if mismatched it will affect your financial wellbeing and can also cause mental stress, especially to small business owners that are worse affected due to the Covid-19 pandemic.
There are many government loan schemes launched by the Indian government to offer relief to MSMEs in the form of subordinated debts, collateral-free loans, and equity infusion through its Fund of Funds (FoF) scheme in 2020. This scheme proposes to purchase up to 15% growth capital in high-credit MSMEs.
You can work with a business mentor who can help you to manage funds more efficiently. Also, if you have a well-thought financial plan, you can solve the cumbersome process of taking your business out of debt, just like others.
Here is how you can chart your way out of debt:
- Reorganize your DebtsThe first step that will take you closer to managing your debt is to organize all the details of exactly what you owe. Make a list of your debts with EMIs, interest rates, and tenures. This will help you recognize the costliest debts.
- Pay Urgent & Costliest Debts First!After sorting out your debts, pick the costliest one! Costly debts, if not paid on time, will extract the highest interest. This can drain your finances. Hence, settle your costliest debts on a priority basis. Take help from the business coach for strategies that will help you to settle your debts.
- Make Monthly Budget One of the most vital debt management techniques is to have a monthly budget, planned! Make a list of your income & expenses while deciding on your monthly budget. This will give you a window to think about ways to reduce your daily expenditure. Having details of monthly cash flow can help you save money that you can use to clear your debt.
- Consolidate LoansSometimes keeping a track of all the loans can be difficult. If you have too many loans, consolidating them into one can be a good idea. This will leave you with just one EMI. Business loans, personal loans, and credit cards provide you with this option. It will remove various debts and leave you with just one loan to track.
- Protect yourself Against Economic ShocksThe future is uncertain and it is wise to protect yourself from uncertainties that you might be exposed to. For E.g. a loss of a job could lead to delayed EMIs. So, to avoid such situations, create an emergency fund to help you sustain yourself during a bad phase. Ideally, this fund should be 3-6 times more than your current monthly income.
Repaying loans is a moral, legal, and also a financial obligation. With smart and effective debt management strategies, you too can get your business out of debt.
Learn how to manage your debt with the top-industry leaders from our problem solving course.