If you own a business and have accrued any kind of debt, from taking out a line of credit from the bank, to a margin loan on securities, or a mortgage on the building from which your company operates, cutting interest expenses is a good way to minimize your costs. While interest rates appear to be on the rise, there are still several strategies that you can use to cut interest expenses on the money your business uses to operate.
Convert Variable Rate to Fixed Debt
If you have loans that you don’t expect to pay off in the very near future, it may be better to convert your variable rate debt into fixed debt. Your bank’s interest rate for five year loans may be lower than the variable rate. Locking in a lower fee may be beneficial in this rising interest environment, since it ensures that your rate will not skyrocket and the line of credit will still be available to use in an emergency situation. In addition, switching to a fixed debt loan will also provide you with a payment schedule, which can be helpful in planning your future expenses.
Transfer Your Debt
If you have accrued debt on a credit card that has a high interest rate, you may want to consider transferring that balance to a card with a lower rate, especially if the new card has a “honeymoon period” with a low or no interest introductory rate. However, when transferring debt, you’ll want to be aware that these kinds of transfers often cause the bank to lose revenue, so your bank may add a penalty fee to soften the blow.
Pay Your Bank
According to Accounting Web, if you have a line of credit through your bank and also have a credit card balance, it may make sense to start paying your bank rather than the credit card company. While it will be a floating rate, the large point spread may still make it a beneficial strategy.
Find Other Ways to Save
If your company owns securities, for example, you may be able to borrow against them with a traditional margin loan. In addition, your bank may allow you to design one or more of your accounts as collateral, where you can borrow against your account in an asset-based lending program in order to save money.
Extend a Personal Loan
If your company is very small, extending a loan to your business from your personal funds can relieve the pressure of paying a high-interest loan or credit card. If you decide to go this route, you’ll want to make sure to have official documentation of the loan to protect your personal assets.
Accruing interest on the money that your company needs to operate can add stress to the operation of your business’s finances. However, by reducing the interest you are paying on your business loans, you can alleviate some of this stress and leave money in your budget for new projects, while still paying down your debt.