Money

How To Bypass Money Guilt And *Actually* Deal With Debt

Money: It can be our closest bestie or our worst frenemy. So shouldn’t we at least get to know it better? What does it want from us, anyway? Welcome to “Extra Credit,” our money advice column in which we try to answer just that.

Pamela Capalad is the certified financial advisor behind Brunch and Budget, and this week, she’s helping us break down the stigma around debt, as well as dropping some knowledge on small business loans and when you should *actually* get one.

Got a question for Pamela? Submit it HERE and we’ll answer it in an upcoming installment of “Extra Credit.”

When you’re just starting out, when is it appropriate to take out a small business loan, when you’re just starting out? What should you have in place before you take that dive? And are banks the only viable option?
— Loan Lassie

Ahhh, the beginning of a new business, exciting times! But also quite financially strapped times.

Taking out a small business loan is a big decision when you’re early in your business. The main reason to seriously consider taking out a business loan is if you are taking out a loan for something you anticipate will grow the business. This could mean buying inventory in bulk, a piece of equipment or software that will allow you to do more work and scale the business quicker, or needing to do renovations for a storefront or office space.

Before you take out a business loan, make sure you have a clear understanding of what your cash flow currently is. This means you know what is going in and what is coming out of the business, now, and in the next 6-12 months. Then figure out how much you could afford to pay back every month if you were to take out a loan and how much more income you predict you can make by taking out this loan.

There are other viable options besides banks, but make sure you’re very clear on the terms. I highly recommend first seeing if you can qualify for an Small Business Administration (SBA) loan. They tend to have great interest rates and terms and have less strict qualification requirements for newer businesses. The downside is the process to get approved could take months.

If you need money more quickly, look into Lending Club, Fundera, or OnDeck for their small business loans. Word of warning though: They are spammy (you may have to block their number if you want them to stop calling), their interest rates are on the higher side, and they charge “origination fees” which are usually an up front charge of 2 to 4 percent (or higher) of the loan amount.

Another option to consider is taking out a small business line of credit, like Kabbage. This works similarly to a credit card, where you have the option to borrow a certain amount of money, but only pay interest on the actual amount you are borrowing. This is a good route to go if you won’t need all the cash up front or want to have some funds available on a revolving basis that you can pay back.

Whatever option you end up going with, make sure you begin with the end goal in mind and have a clear plan for how you will pay down the loan, how long it will take, and what back up plans you need to put in place if you have lean months in your business.

I am 22-year-old university student and have already accumulated a fair amount of debt and I’m unable to work full-time while studying. How do I keep my debt at bay and keep my rent paid on time, while only working part-time? I feel suffocated by numbers and time!
— Debt Downer

Thank you for a question, I get it a lot! It’s about prioritizing your bills, tracking your spending, and putting the credit cards away.

If you need to only make minimum payments on your credit cards while you focus on studying and can only work part time, that’s totally fine. Don’t beat yourself up over having to pay interest or feeling like you were irresponsible. What’s done is done, so try not to feel guilty or freak out if you’re not paying everything off in one go. Remember, everyone has their own reasons and circumstances for getting into debt.

I read this amazing book recently called Surviving Debt, and one thing they reiterate is that usually the debt collectors who are yelling at you the loudest are the ones who can’t do anything but yell. Do your very best to keep up with the payments, so you don’t affect your credit score negatively. But remember to spend your mental energy finishing school, keeping a roof over your head, and managing your current expenses.

Always speak to a licensed financial services provider or specialist before making decisions that could affect your financial wellbeing.


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