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How startups can learn to handle debt

On Behalf of | Jul 11, 2018 | Business Law |

Business ventures often begin in debt. The exact structure of a startup’s capital can take many different forms, but most business owners in Ohio will have investors, credit cards or a bank loan of some kind. Realistic expectations are a key part of dealing with debts successfully. It’s better to prepare for those things that can be expected, even if they’re not enjoyable to think about.

A U.K. study published in 2016 said 9 percent of startups began operations with no concrete budget. Even the most basic budget should account for expenses like staff wages, equipment, marketing, utility payments and office rent. An established budget allows ownership to identify costs and create spending plans. Loan applications are often rejected, which can be a good thing in that it can keep businesses from taking on excess debt, but it can put startups in difficult situations.

Research that analyzed the fastest-growing American companies indicated more than half of them were financed through bank loans, with other primary sources of funding including angel investors and credit cards. Handling multiple debt streams is difficult and wastes resources. However, consolidating debts can free up time and create peace of mind. It can also work to lower the interest rates the company must pay.

If debts are reaching dangerous levels, business owners must think about where cuts can be made. Some beginning operations can do just as well with second-hand equipment, flexible work hours or other compromises to save money. Entrepreneurs who have questions about how to handle their debt may want to speak with an attorney. A lawyer with experience in business law could help by suggesting ways in which debt might be structured or restructured. An attorney may draft and file the documents necessary to establish a Sub-S corporation, C-corp, LLC or another business entity under which the business can operate.