As scary as it may seem, debt is a common part of running any small biz. The key – says financial counsellor Jane Smith (whose name has been changed for privacy reasons) – is knowing how to manage it. As someone who works with struggling small businesses, Jane knows her way around a debt. Here, she talks us through some helpful advice that demystifies the mysterious money monster, bringing it into the light of day so that it doesn’t seem so scary.  

UNDERSTAND THE DEBT Getting into debt isn’t something to be ashamed of. “There are many reasons why people get into debt,” Jane says. Sometimes, these are reasons outside of your immediate control. External forces like COVID-19 lockdowns and cost-of-living pressures can have unforeseen consequences on a business, while internal factors like mental health struggles can prevent people from working. “Also, having a bad credit rating can mean people can only borrow from online lenders that may charge very high interest rates,” Jane warns. Acknowledging how you’ve gotten into debt can be a helpful first step in understanding the circumstances that surround you, and which of those you can control going forward. 

PREPARE FROM THE START It’s always better to be prepared for the worst when setting up your biz, rather than jumping straight in the deep end and just hoping you’ll stay afloat. “Debt is often integral to running a small business,” Jane says. “However, make sure you only commit to manageable debt.” Jane suggests some simple (yet extremely important) tips to keep in mind when you’re setting up your business, like taking out business insurance for unexpected loss of income and reading credit contracts thoroughly before you sign them. Seeking advice from an accountant or lawyer is also helpful. 

KNOW YOUR LOANS Managing a loan effectively begins before you even take one out. One point to consider before getting a loan is trying to improve your credit score so that you can borrow from a bank. Or, if you do borrow from an online lender, “having a better credit score means the interest rate will not be as high,” Jane says. “Next, check the hardship policies of the lender to make sure the lender will provide some hardship options if you are unable to repay the loan.” If you find yourself unable to repay the loan, contact the lender as soon as possible to notify them of the reasons why you can’t. “Ask for a moratorium for a period of time so you do not have to make any repayments,” Jane says. “But remember, interest may continue to accrue during the moratorium, so ask the lender if they will put interest and penalties on hold during the moratorium. You will still have to pay back the missed payments or arrears when the moratorium finishes.” 

WATCH FOR WARNING SIGNS There’s not often one singular moment that causes a bottomless hole of debt to open out from under you. Jane suggests that you keep tabs on early warning signs, such as if you are unable to pay your debts on time, if you’re making irregular payments to creditors or if you’re only partially paying them. It’s not uncommon to struggle with repaying debts, and if you do find this to be the case, Jane says to “reach out as soon as possible to the creditor.” Ignoring the problem won’t make it go away. In fact – like most problems – it’ll only get bigger. 

SEEK PROFESSIONAL ADVICE There’s no shame in getting help – financial counsellors and other financial folk exist for a reason. Jane’s top tip on seeking help from an external support person is to do it sooner rather than later. “If you have an accountant, speak to them about your options,” she says. “If you are unable to pay an accountant, you can contact a free financial counselling service that may be able to negotiate and advocate with your creditors and assist you in managing your debt repayments.” Reaching out for help isn’t limited to getting a financial boffin to assist with your business. There are also plenty of nifty (and free) resources to learn more about or get help with other parts of running your biz. These can include online webinars, tax clinics, mental health assistance and helplines. You can spy these resources at the links below. 

Business Victoria online webinars 

Australian Tax Office webinars and resources 

National tax clinics that offer eligible free assistance with completing tax returns 

Beyond Blue free mental health assistance 

National Debt Helpline financial counselling 

Small Business Debt Helpline 

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