by Dustin Siggins
When the pandemic hit America, 74% of small businesses took on debt to offset COVID-related losses.
Much of this debt came through the Small Business Administration’s (SBA) 14 million-plus loans approved by Congress, while other debt was secured through personal collateral. A Fall 2020 Federal Reserve survey found the number of businesses with $100,000 or more in debt “rose from 31% to 44% in 2020.”
Some of this debt may be forgiven by the SBA, but what isn’t will act as a hidden land mine for small businesses. Companies with debt often have limited financial flexibility, must put repayment — often with interest — ahead of critical business operational expenses, and frequently, will not secure the most favorable terms and conditions for major capital purchases.
Despite these weaknesses, debt was popular even before the pandemic.
The 2020 Federal Reserve survey found that 71% of small businesses held debt in 2019, and nearly half in a 2018 Federal Reserve survey took on more debt than in 2017.
With the pandemic increasingly in the rear-view mirror, small businesses should also put unwise debt behind them by:
- Reducing unnecessary expenses to increase cash on hand to repay debt
- Streamlining operations to improve cash on hand and…