Should A Business Keep Refinancing Its Debt?

Considering the slow economic growth or total lack of growth you will be partial towards thinking that refinancing your business debt is the best way to stay in business. However, this is actually a dumb strategy for a small business, or any business.

If your debts are getting out of hand I will strongly advise you to review and start looking at areas where you can cut costs because by simply refinancing your business debt, you are just putting off today's problem until tomorrow. The other factor to consider is that your debt has actually increased instead of decreasing.

Let's look at Greece. The situation has moved from bad to worse and now they have no choice but to tighten their belts on spending. The fact that the central banks are involved in the refinancing package gives the countries refinancing their debt an option that is not really open to businesses. If the countries default, it has a major global impact because the money loaned to them belongs to other countries and investment houses; if this happens the world will definitely fall into a deeper recession. Hence, the Central Banks are helping to manage and minimise any risk of defaults.

A business that fails to service its debt is declared bankrupt and this will cause job losses. Do you remember Lehman Brothers? They are a modern day example of a company that couldn't service its debts.

I strongly believe businesses can learn from both Greece and America simultaneously. I am not suggesting that borrowing or refinancing is totally bad because if you have a clear strategy and you need to borrow in order to implement the plan and this plan will grow the business, then consider it. No matter what other authors or speakers are saying there is definitely only three ways that you can grow your business and they are:-

• Get some new clients or customers
• Increase the value of each sale
• Increase the frequency of the sale

The most expensive option to implement is option 1 because the cost of getting new clients is extremely high. Option 2 and 3 are the best options and don't worry whether your clients could afford it or not because as long as you are providing a good service with a personal touch your clients will be happy to pay for your services.

In our company over the last two years of slow growth we have managed to increase our price and we have not lost a client because of costs. We are unique because our competitiveness is not on price instead it is based on outstanding customer service, result orientated approach and a rapid delivery. In conclusion you should frequently review your debts and explore ways that you can reduce it long term.

Photo Credit To ntrung of Flickr