For small business owners and entrepreneurs, heavy debt and a bad credit score can quickly mean the end of their dreams. The biggest problem with debt issues or poor credit would be acquiring the initial capital needed to start up and sustain a new business. Convincing investors or banks you have a profitable idea is hard enough to begin with but with a poor financial history it can be almost impossible. If you haven fallen too far behind on some payments sometimes companies will buy debt leads from your original creditors, which can have a negative impact on your credit score.

The first option available to get back on the right side of things would be to file for bankruptcy, either Chapter 7 or 11 depending on the nature of the dept. This is, and always should be a last resort option, as it will be an instant red flag to any investors or lenders. Along a similar line to this would be consolidation, similar to the debt leads mentioned above, where your debt is all combined and you make one monthly payment.

Companies looking for debt consolidation leads may contact you offering to pay off your creditors all at once and then having you pay them back the total amount. While this a better option than bankruptcy, it could still have a negative impact on your company. Similarly, companies examining debt settlement leads may offer to negotiate your debt to a lower amount, but they will charge a fee to do so.

The best option to start with is try to better your financial situation the old fashioned way, by decreasing your spending.  Eliminate any extra costs that are not imperative to daily operations or even your personal life. If location isn’t crucial to your success, consider downsizing to a smaller office in a cheaper part of town, or consider working out of your home. Finding another small business in a related industry to partner up with can be a good way to share expenses and grow your company

Now that you have started spending less the next thing to do is try to earn more. Sounds easy enough right? Obviously if it was then you wouldn’t be in this situation to begin with. Expand your business in any way possible that will not require more capital to do so or even look to get a second job that may not be directly related to your business.

The last thing is to try and work with your existing creditors to work out deals on payment plans. Banks and other financial institutions will often be flexible on interest rates and late fees if they see you are being protective and committed to paying back the debt. Even with marginally reduced interest rates, over time you will find that thousands of dollars may be saved.

So keep bankruptcy out of the picture for as long as you can, cut spending, increase earnings and work with your creditors. The future may look bleak now, but with the appropriate measures and a little patience, prosperity may not be too far away.