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How to Get Your Small Business Out of Debt

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Read Time: 13 mins

As I mentioned in my earlier tutorial on borrowing money to fund a business, debt can be a powerful way to raise money to finance growth and expansion. Large corporations and governments use it all the time for that purpose, and small businesses can do the same, if they manage it carefully.

But, as we all know, debt can also be dangerous. If you borrow too much, and if your business doesn’t perform as well as expected, your small business debts can quickly spiral out of control.

So this tutorial is for anyone whose business is really struggling with too much debt. I’ll provide some clear, simple steps you can take. Learn how to get out of debt fast and put your business back in the black. Let’s get started. 

1. Raise Extra Revenue

While business debt can be in some ways more complicated to pay off than consumer debt, in some ways it’s easier. Individuals are often on a fixed salary, with little prospect of bringing in extra, so the only thing they can do is cut costs. As a business, on the other hand, you can also try various tactics for increasing your revenue.

You could engage in low-cost promotions, for example, holding a special limited-time sale or offering discounts or coupons. If you have a lot of inventory in stock, that represents money that's tied up in your business and is unavailable for things like paying down debt. Selling it off in a special sale can free up cash to help you get out of debt.

And these are just a few ideas for raising revenue quickly—there are lots more things you can do to bring in more money on a long-term basis, such as setting up an affiliate marketing program, asking for referrals, using content marketing, and lots more. Find out more in these marketing tutorials on Envato Tuts+:

2. Chase Up Late-Paying Customers

Depending on the type of business you run, you may have to wait a while to get paid for the work you do. A web design studio, for example, may complete a project, turn it over to the client, and then submit an invoice, which the client may pay a month later.

These late payments can be problematic, but they can also provide an opportunity to raise money to help you get out of debt. Make a list of outstanding invoices if you don’t already have one, and start to contact all the customers on the list, starting with those that have been outstanding for the longest time. While some customers will probably still hold out, many will pay up when politely nudged, giving you more money to devote to debt repayment.

You can help to ensure your future invoices are paid more quickly by following the steps in this tutorial:

The following tutorial also offers tips on getting paid on time—although it’s aimed at freelancers, many of the tips also apply to small businesses:

3. Cut or Delay Expenses

Now that you’ve got more money coming in, it’s time to look at the other side of the coin: cutting costs.

Cut Small Business ExpensesCut Small Business ExpensesCut Small Business Expenses
Cut small business costs.

This can be difficult to do, because you’re probably already only spending money on things that you think are important. Whether it’s an employee you hired or a marketing program you invested in, there was a good business reason for doing so, and it’s difficult to go back on that now.

But if you’re reading this tutorial, it’s because you’ve reached a level of debt that’s strangling your business. So be ruthless in your assessment. The priority at this stage is your company’s survival. 

Keep in mind that, although it’s tempting to cut smaller expenses because they’re easier, a single large cut is often more effective. For example, moving your business to a cheaper building and saving thousands of dollars in rent, while it may be a difficult thing to do, will allow you to make a real dent in your debts.

Also, a less painful alternative to cutting costs is to delay them. In the last section, we talked about the delay between doing work and getting paid; often, in business, there’s a similar delay between buying goods or services and paying for them. If you’re smart, you can use that to your advantage to boost your cash flow.

If you have 30 days to settle an invoice, for example, take the full 30 days. That will give you the use of that money for a month, allowing you to pay bills and have a cushion for other, unplanned expenses. That cushion may not seem like much, but it can add up if you have a lot of expenses. If it allows you to pay off a chunk of debt a month early and save on interest, it’s worth doing.

Don’t push expenses back beyond their deadlines, though—that’s a sure way to sour the relationship with your suppliers. Just use the full timeframe you’ve been allowed, and no more.

4. Sell Off Assets

Many small businesses these days, especially digital businesses, have few assets. But even so, every business has at least some assets. Maybe you have some computer equipment, or a vehicle that you use for your business. If you manufacture physical products, you’ll likely have some raw materials and inventory, as well as equipment you use for production, and maybe a building if you own rather than rent.

All of this will be listed on your company’s balance sheet. And all of it represents money that’s tied up in your business. If you free it up, you can use it to pay down debt.

Of course, as you can see from the examples I gave, many of the assets of a business are critical to its survival. If you sell off all your equipment, you can’t produce any more products. So it may be difficult to raise money here. But maybe there’s something you can do without, at least as a last resort.

Another option is a “sale and leaseback” agreement, where you sell the equipment, bringing in some money that you can use to pay down debt, and immediately rent it again. That way, you’re still able to use it, but you’ve exchanged something you own for something you rent. It’s not ideal, of course, because you’ll have to make those regular payments to keep using it, but it’s a way to raise money in a pinch.

If you’re not sure how to read your balance sheet and understand what assets you have, read this:

5. Prioritize Loans to Pay Off

Now that you’ve got some extra money coming in, how do you allocate it?

The first step is to make sure you’re taking care of your business’s critical expenses and to ensure you don’t have to get into more debt.

So forecast your business’s cash flow for the next month or two, making sure that you have enough to cover all your planned expenses, with a little extra set aside for the unplanned ones. For detailed instructions on how to do this, see section 2 of this tutorial:

If you’re in the fortunate position of having extra money available to pay down debt, then you need to prioritize which debts to pay off first.

With personal debt, it’s simply a matter of ranking them by interest rate, but with a business, it’s a little different.

The first ones to pay attention to should be those that affect your key business relationships. If you have fallen behind with paying your employees’ salaries or other benefits, take care of that before doing anything else. You can’t expect people to work diligently for you if you’re behind with their pay.

Next, take care of any overdue bills from key suppliers. As I mentioned earlier, you don’t have to pay these immediately—in fact, delaying payment can be a good strategy for improving your cash flow and freeing up more money to pay down debt. But the delay should only go up to the latest deadline specified by the supplier. If you’ve gone beyond that, pay off these outstanding invoices as soon as you can.

Both of these debts may not be costing you interest, but they will be costing you something more intangible and yet more important—your reputation. So prioritize those and any similar debts first.

Next, pay off any debts that will have severe consequences for your business if they’re not cleared. For example, the tax authorities may impose serious penalties if you fail to pay on time. And you may also want to focus on a particular debt that’s secured with valuable collateral or for which you or another person gave a personal guarantee.

After that, it’s a case of ranking your debts by interest rate and focusing on the highest interest rate first. Focus all your energy on paying down that one, just making the minimum payments on all the others. Then, when that one is paid off, move on to the next on the list, and so on.

Some experts advise focusing on the debt with the smallest amount first, the idea being that you can pay it off quickly and give yourself a sense of progress, while freeing up more money to pay down the next ones. There’s a certain psychological attraction to this, but financially it makes more sense to focus on the debts that are costing you the most in terms of interest and penalties.

6. Contact Creditors

Culturally, there’s a big stigma around debt in many countries. So when we get too far in debt, we may end up feeling ashamed and not wanting to admit the problem or confront it.

With a business, there’s the added problem that so much depends on the appearance of success. If you admit that you’re struggling, other people who do business with you or invest in your company may get spooked and turn to another company that seems like a safer bet.

But when it comes to paying off debt, keeping your troubles to yourself can be counterproductive. If you speak up and confront the problem, you may be able to improve your situation.

Creditors, for example, may be open to negotiating better terms. Say you owe the bank $10,000. The bank doesn’t want your business to go under, meaning that they lose the whole $10,000. They might be willing to let you pay the money back over a longer period of time, so that the payments are more manageable, or in some cases they may even be willing to accept less money than you owe. From their point of view, it’s better to get a portion of $10,000 back, or to get $10,000 back later than they expected, than to get nothing at all.

So pick up the phone, arrange a meeting with your creditors, and see if you can negotiate better terms. It may not be possible, but on the other hand you may get a pleasant surprise. It’s certainly worth a try.

7. Hit Up Friends and Family

Borrowing more money to pay off debts rarely makes sense, but it can be a good idea if you’re borrowing from friendly sources. You could end up swapping a high-interest bank debt for a loan from your cousin that comes with zero or low interest and with more flexibility for repayment.

Of course, the danger is that you can put a lot of strain on your friendships or family ties if things go wrong. So you should treat these loans professionally, drawing up a contract and specifying the terms and the repayment schedule. And you should stick to those terms. Although this debt will probably be at the bottom of your prioritized list for paying down the balance, it’s still important to make whatever payments you’ve committed to.

For more on this type of loan, see the following tutorial:

8. Consider Debt Consolidation

As with personal debt, businesses can also apply for debt consolidation loans. The idea is that instead of owing money to ten different creditors, you take out a single loan that allows you to pay off all the others.

Be careful, though, because there are scamsters out there in the debt consolidation and restructuring world. And there are also just debt consolidation loans that aren’t a very good deal. You can sometimes end up paying a lot of fees for a company to do the same things you could have done yourself.

For it to be worth it, you need to be making lower monthly payments at the end of it all. The point is not really to have one debt instead of several, but to have one debt that costs you less than all the others did. So do your sums, and make sure that you’re in a better position after the consolidation than you were before. 

9. Get a Second Job

If your business is struggling, you don’t want to take time away from it and focus on other things. But if you’re desperate to pay off debt, you could consider using your skills to pick up freelance work to raise extra money.

Maybe you have some web design skills, for example. You could offer to design websites for other companies to make some extra money. Or you could design WordPress themes and sell them on Envato Market.

Getting a new full-time job is probably not a good idea, because you simply won’t have enough time to devote to getting your business back on track. But doing a bit of freelance work, or producing some digital assets to sell in online marketplaces, is worth considering.


Debt is like extra weight—easy to acquire, but hard to lose. Nevertheless, in this tutorial, I’ve looked at some steps you can take to get out of debt. Small business debt can be damaging, but it doesn’t have to be crippling.

In this tutorial, I’ve focused on quick solutions to raise money and pay down debt. You’ve learned some strategies to raise extra revenue, cut costs, prioritize debts, and more.

But, of course, when the immediate crisis is under control, you’ll also want to examine how the business got into this situation. High debt is usually a symptom of other problems. So use the business tutorials here at Envato Tuts+ to help you diagnose and treat those problems. You could start with these:

Take action on what you've learned today on how to get out of debt fast or at least start making positive progress to begin paying down your small business debt. Let know about your challenges in the comments below.

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