How to Get Unstuck From Debt

Short of not getting into it to begin with, here's a way to manage your business debt.

By: Chia-Li Chien | Published 12/29/2009

I recently met a successful woman business owner I'll call Anna. Anna has been in business about 20 years and has weathered the economy's ups and downs. But nothing she's seen before equals the problems facing businesses like hers today. Ann has bid on jobs for state and federal governments and for private companies, with little to show for it. Even the bid she won will only serve to keep the business going. When Anna came to me, she felt stuck, unorganized and overwhelmed.

Anna is not alone. Many of my clients and business colleagues feel as though they've hit the wall. In most cases, their top priority is short-term working capital or some type of short-term loan. This will help them fill the gap until they get paid for completed work, or they need the capital to innovate their product. They're stuck because they can't move one way or the other.

When it comes to finding money in today's banking environment, feeling stuck is a common complaint. Financing simply isn't easily available.

My best advice: "If you don't need to borrow money, don't!" Call me old-fashioned and conservative, but I really don't want my company to be in debt. Nor do I want a lender or investor to interfere with how I run my business.

But if you have no choice, you want to get the best deal you can work out. So before you jump into a relationship with an alternative financing firm, consider the following questions:

  • What is the purpose of the money you borrow? Is it working capital, capital investment or a line of credit to purchase necessary inventory?
  • What is the cost or interest you're willing to pay? Is it 5 percent, 18 percent, 40 percent or even a portion of your company?
  • How long do you need the money? When can you begin to pay back both interest and principal?
  • What is the payback or return on investment? This is the most important question to answer.

The rule of thumb in the sequence of borrowing is to borrow from yourself first, before reaching out to third-party lenders. Consider the following borrowing sequence:

  • Your business or personal cash, savings, checking or CD in the bank.
  • Non-qualified or non-retirement accounts such as brokerage accounts, fixed or variable annuities and life insurance with cash value. For example, you can pledge a variable annuity up to a percentage of the contract value as collateral.
  • Qualified retirement accounts such as a 401(k) or IRA--but watch out for current tax liabilities and penalties if you're younger than 59½.
  • A home equity line, if you have enough equity in your home to refinance.
  • Business line of credit--if you still have it, keep it up.
  • Business or personal credit cards--18 percent and up

One of my clients had over-leveraged many years ago before working with me. He asked me recently, "How do I get out of this debt cycle?" The short answer is, "Don't get into it in the first place." But if you really need that short-term loan, ask your CPA, attorney, business advisors, financial advisors or even business colleagues if they can help you find at least three firms to interview. That way you can compare the cost for each and pick the right one for you. The bottom line is that your net profit will be eaten up by the cost of the capital. You need to find a way to pay the loan back in a short time.

Other creative ways include looking for grants. That's what my client Joan did. I introduced her in the column, "Successful Entrepreneurs Reconceptualize." She found a company to help her write a grant and shop it to agencies and organizations. She got her $100,000 grant to write software for her business.

Most CPAs will advise you to take all the net profit out of the company after the tax season. They say that for a good reason, because you already paid the taxes. However, I have my own philosophy--have your own banking system. Yes, I take all the net profit out of my company, but I keep it separate for a rainy day. My company does not have a line of credit, and I don't want one. If I need to borrow the money from my own banking system, yes, I pay it back. Many of my clients are doing the same.

The bottom line about "feeling stuck" is that money is not the root cause, it's a symptom. Take a look at your business model and ask yourself why you are where you are today. If you don't want to get to this point again, reconceptualize your business, as I advised in my column, "Now's the Time for Reinvention."


Chia-Li Chien, CFP®, CRPC, PMP; helps women entrepreneurs to convert their business into meaningful personal wealth.  She is the author of Show Me The Money and columnist for & Fox Business online.   She is available for consulting, speaking engagements and workshops.  She can be reached at or


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