Advice for a Business Haunted by Decade-Old Credit Card Debt

Check out this recent article from BloombergBusinessweek on how to shake the business burdens of credit card debt:

Question: My business is 11 years old and growing each year, but we still have a huge debt hanging over our heads due to bad purchasing early on, which I financed on credit cards. I need working capital to pay off my bad debt and have money to market myself better now. What can I do?

Your problem raises a couple of questions: Who owns this outstanding debt? And what are your financial priorities for the company?

First: You mention outstanding credit-card debt, but it’s not clear whether this is personal credit-card debt you incurred to fund the business startup. If you can separate your personal debt from your business debt, that will improve your company’s financial profile and help you get working capital.

“Make sure the business is set up as a separate legal entity, such as a corporation or LLC. Then have the debt show up on the company balance sheet as payable to you, as the owner,” says Bill Hettinger, author of Finance Without Fear: A Guide to Creating and Managing a Profitable Business. “When the business has its own financial statements and a current business plan, business assets and cash flows can be used to help reduce the debt and obtain working capital.”

Second: Figure out your financial priorities. Do you want to focus on eliminating the credit-card debt or investing in expansion? If you defaulted on old debt that has been handed over to a collections agency, the damage to your credit is done and can only be repaired over time, says Mark L. Rockefeller, chief executive of StreetShares.com, a peer-to-business lending platform. “I would ignore it, focus on raising working capital to finance growth, and pay the debt off later out of that growth,” he says.

Click here to read the full article.

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