Small and medium-sized enterprises (SMEs) often find themselves navigating the sometimes treacherous waters of debt. Whether to seize an opportunity for growth such as applying for an EDG grant, or to weather a financial storm, debt can be a strategic tool when managed effectively.

To help SMEs harness the power of debt to grow and prosper, this guide will walk you through the essential steps of managing debt in a way that optimizes your financial health.

1. Assessing Debt

Understanding your current debt situation is the first step toward managing it intelligently. Here are the key aspects of assessing your SME’s debt:

Evaluating Existing Debts

List all outstanding debts and identify the terms of each loan or line of credit.

Begin by gathering all current loan documents. Assess the interest rates, payment schedules, and total amounts owed. This comprehensive debt inventory gives you a clear picture of your standing with each creditor.

Determining Debt-to-Income Ratio

Calculate your company’s DTI to see how your existing debts align with your income.

The Debt-to-Income (DTI) ratio is a widely used financial measurement. For businesses, this ratio compares your business’ monthly debt payments to its monthly income. If your DTI is climbing, you might be taking on more debt than your business cash flow can responsibly manage.

2. Creating a Debt Management Plan

Upon assessing your debt, it’s time to develop a plan. Here’s how to create a strategic debt management plan:

Prioritising Debts

Determine which debts are most urgent to pay off and create a payment schedule.

Focus on debts with the highest costs first, such as those with the highest interest rates. Prioritising these debts within your payment schedule can save your business significant amounts in the long run.

Negotiating with Creditors

Open up lines of communication with creditors to restructure payments or interest rates.

Don’t be afraid to negotiate with creditors. In many cases, creditors are willing to work with you to find a more manageable repayment plan that doesn’t hinder your business operations.

Consolidating Debts If Necessary

Consider debt consolidation to simplify your payments and possibly lower your interest rates.

Debt consolidation involves taking out a new loan to pay off multiple existing debts. This can streamline your monthly payments and, if you qualify for a lower interest rate, save you money over time.

3. Implementing Debt Repayment Strategies

Once your plan is in place, it’s time to start paying down your debts. Here are three popular repayment strategies:

Snowball Method

Start by paying off the smallest debt to build momentum and motivation.

The snowball method focuses on the psychology of debt repayment. By starting with the smallest debt, you can pay it off quickly and feel a sense of accomplishment to fuel your debt payoff efforts.

Avalanche Method

Prioritise debts with the highest interest rates to minimise overall costs.

This method targets high-interest debts first, which is the most cost-effective approach mathematically. Over time, it can save your SME substantial amounts in interest payments.

Balancing Debt Payments with Cash Flow

Adjust payments based on your business’s cash flow to avoid financial strain.

Remember that your business’s cash flow can fluctuate. Be flexible with your payments, ensuring you don’t overextend your business’ finances in lean months.

4. Monitoring and Adjusting

Debt management is dynamic, and thus, requires monitoring and occasional adjustment. Here’s how to ensure that your debt management plan remains effective:

Tracking Progress

Regularly review your payment progress and adjust your plan as needed.EDG grant

Compare your actual payment progress against your initial plan. If you’re falling behind, it might be time to revise your strategy or seek further assistance.

Making Adjustments as Needed

Be prepared to make changes due to unexpected financial challenges or new opportunities.

Be open to adjusting your repayment plan due to changes in your business or the business environment. Flexibility is key to enduring success with debt management in your SME.

5. Professional Help

Sometimes, the complexities of debt management demand professional assistance. Here are some instances where a financial advisor could help:

When to Consider Hiring a Financial Advisor

Consult with a professional when your debt becomes unmanageable or when planning significant financial moves.

Debt that’s spiralling out of control or a significant financial event on the horizon can both be reasons to seek the guidance of a financial advisor.

Benefits of Professional Guidance

Financial advisors can offer expertise, experience, and an objective perspective to your debt management strategy.

A professional’s insight can prove invaluable, offering you a different take on your business’s financial health, from identifying blind spots to unveiling previously unrecognised opportunities. They can also assist businesses who plan to apply for financial programs such as the EDG grant.


The financial well-being of your SME is a product of how effectively you manage debt. By assessing your debt situation, creating a comprehensive management plan, employing smart repayment strategies, monitoring your progress, and seeking professional guidance when necessary, you can achieve financial optimisation and create a solid foundation for your business’s success. Remember, debt is a tool. It is not inherently good or bad. It’s all about how you manage it that makes the difference.