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11 Nov
  • Editorial Team

Small businesses are businesses that are “small” in terms of their capacity of production as well as the number of employees engaged in the business. Small businesses in many countries are recognized in the form of small grocery stores, convenience stores, restaurants, guest houses and small scale manufacturing units.

Small and medium sized enterprises are independent firms who have a limited number of employees. The maximum limit of the number of employees is 250. However, the number of employees varies from country to country.

Key challenges faced by small businesses:

  1. It is not easy to plan for recessions, natural disasters or other negative events: No business can ever be prepared for natural disasters, wars or major shift in policies which threaten their business model, these kind of risks are very hard to anticipate and plan for.

  2. Take the preventive approach: Although it is impossible to prepare for unavoidable circumstances, a preventive approach is recommended for businesses. This can be achieved by staying informed about your cash flow positions, economic cycles and health of customers and industry in general. Additionally, be cautious in your approach to business by taking calculated risks and having a nest egg stashed away for the difficult times.


Understand the Financial and Operating Situation before taking action:


  1. Take stock of your financial situation: To effectively manage debt, it is important to regularly take stock of the financial situation of your business. Meet with your banker, key customers, vendors and employees on a regular basis. This will help you stay informed of the trends and shifts in operating conditions. Such regular assessment and analysis can go a long way in taking timely action.

  2. Understand your cash flows: Understand the flow of cash and consider the monthly expenses that need to be paid. Once all the expected expenses have been taken note of, prioritize them to ensure that the most important payments are always made on time. Prioritize the EMI payments, salaries, insurance and utility payments like electricity bills over any other outflows.

  3. Repayment of high interest loans: If you have multiple borrowings, ensure that the higher interest loans are repaid first, followed by the lower interest ones. This will save you from the payment of higher interest rates in the future. It is always important to prioritize loans based on the rate of interest. Hence, if a higher interest loan is outstanding, pay it off first.

  4. Negotiate longer terms of payment: To manage debt effectively, you need to think of ways in which you can continue the business as well as make the payments on time. To do this, you can negotiate longer payment terms from the suppliers and shorten the payment terms for the customers. This means you earn faster and spend slower.

  5. Know your cash position: It is extremely important for any business to be aware of the cash position at all times. This includes the position of cash in hand, receivables as well as payables. This record should be maintained along with dates, so that the repayment schedule can be prepared and be adhered to.

  6. Repay as much as you can: With borrowing, comes the burden of interest. If you have a sudden inflow of cash due to the sale of a fixed asset or a good season in terms of sales, repay as much amount as you can. This will reduce the payment of interest and will stop the monthly outflow of cash quickly.

  7. Renegotiate terms with your existing financier: The above mentioned options work when you have not yet defaulted in the payment of a loan. In case there is no possibility to repay the amount borrowed, you can renegotiate the terms with your financier. The easiest way to refurbish a loan is by changing the tenure. Contact your financier and inform about your situation. Many times, the financiers are understanding and convert the same loan into another one with a lower rate of interest and a longer duration for repayment. This reduces the monthly payment. This can work as a benefit for small business loans.

  8. Look for better deals: Before you seek small business financing, scout the market and see what the financiers have to offer. The competing financier may offer you a better deal. In addition, certain financiers provide the facility of loan balance transfer, which means you can transfer your loan to another financier and repay the balance with different terms. The terms could mean lower interest rates and a longer duration.

  9. Reduce costs: The best way to manage small business debt is to reduce the costs of production and operations by being cost conscious and developing abusiness case for every expense.

  10. Pursue better opportunities to boost revenue: Continuously pursue better opportunities that can benefit the business in the long run. Be it getting into geographically new markets or attempting to gain new customers, it will help the business grow and reach new heights.

  11. Increase productivity: New technologies in manufacturing or services help in increasing production or revenues while reducing the overall costs in the long run. So invest regularly in new technologies and processes.

  12. Prefer bulk purchases: If you make raw material purchases, opt for bulk purchases which will give you bulk discounts as well. Purchasing from the manufacturer or wholesaler will help in gaining discounts and give you your preferred payment terms as well.

Small business financing through loans may sound as an easy option to finance your business, but servicing the debt may become difficult in challenging economic conditions. Fortunately, with the right steps, it is possible to come out of such situations all that is required is financial discipline, environmental awareness and focus on your business operations. Stay aware, stay ahead!

Did You Know


The act of paying out money for any kind of transaction is known as disbursement. From a lending perspective this usual implies the transfer of the loan amount to the borrower. It may cover paying to operate a business, dividend payments, cash outflow etc. So if disbursements are more than revenues, then cash flow of an entity is negative, and may indicate possible insolvency.

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