Keeping close tabs on your financial situation is crucial for small business owners. Having a business debt schedule can help you to better understand and manage your debt.
We’ll discuss in detail what a business debt schedule is, what types of debt should be included, illustrate what a debt schedule looks like, and answer some common questions about them.
- A business debt schedule is an inventory, commonly structured in chart form, that includes information about a business’s current long-term debts or long-term liabilities.
- Examples of what categories to list when creating a business debt schedule include: creditor name, original loan principal, term, secured or unsecured debt, maturity date, annual interest rate, monthly payment, due date of monthly payment, beginning balance, and ending balance.
- Maintaining an accurate business debt schedule is an important task for small business owners. The document can help keep financial information organized, ensure that a business stays on top of its debt payments, and provide insight about the health of the company.
What Is a Business Debt Schedule?
A business debt schedule is a chart that details the long-term debts or long-term liabilities currently being paid off by a business. Some business advisors suggest listing the debts with the nearest-term due dates at the top of the list.
Certified SCORE small business mentor Jay Berman, of SCORE’s Treasure Valley Chapter, in an email to The Balance recommended keeping a yearly business debt schedule, as the information is crucial for a business’s annual financial statements—comprising its income statement, balance sheet, and statement of cash flows. SCORE is a resource partner of the U.S. Small Business Administration (SBA) and offers the largest network of free volunteer small business mentors in the country, according to its website.
A debt schedule enables a business to track and manage its debts; it also provides important details about the state of the company. If a business is unable to meet debt payments, it’s a strong indication that it’s having difficulty turning a profit and might be failing.
If a small business’s financial records indicate poor performance, the company might need to reevaluate its strengths, weaknesses, opportunities, and threats in order to modify its current strategy to be more competitive and profitable.
Berman said such a reevaluation should start by assessing a business’s products, prices, distribution, and promotion techniques.
What Is Included in a Debt Schedule?
Debt schedules for small businesses, defined by the SBA’s Office of Advocacy as an independent business with fewer than 500 employees, include long-term liabilities. These can comprise secured and unsecured debt that will take more than a year to pay off; for example, loans and leases for things such as transportation and equipment. In addition, large businesses’ debt schedules also will show bonds and debentures, Berman said.
Berman added that a business’s annual debt schedule should include:
- Original loan principal: How much was borrowed when the debt was originally incurred
- Term: How long the business has to repay the debt
- Secured or unsecured debt: Secured debt indicates that collateral was pledged to access the funding. Unsecured debt didn’t require collateral, but the creditor may have asked for a personal guarantee.
- Maturity date: The point when the debt is expected to be repaid
- Annual interest rate
- Monthly payment: This number includes both principal and interest.
- Due date of monthly payment
- Beginning balance: How much debt is outstanding at the start of the year
- Ending balance: The outstanding debt amount at the close of the year
SCORE Mentor Berman recommended that aspiring business owners prepare a personal debt schedule when they write their business plans.
Berman said a business owner’s personal debt schedule should include all personal debts, such as a mortgage, credit cards, car loans, and student loans. He warned that if these loan payments are higher than 20% of current take-home pay, then it’s worth reconsidering starting a business, as it may be difficult to find investors and to manage paying off business and personal debts simultaneously.
How To Fill Out a Business Debt Schedule
The details that small business owners should include in their annual debt schedule are listed in the section above. Here’s an example of how you can format that information into a chart.
|Small Business Debt Schedule|
|Creditor Name||Original Loan Principal||Term||Secured or Unsecured||Maturity Date||Annual Interest Rate||Monthly Payment||Due Date of Monthly Payment||Beginning Balance||Ending Balance|
The Bottom Line
Maintaining a debt schedule is an important part of a small business owner’s records. It can help you organize your financial information, stay on top of your payments, and offer insight into the health of your company.
It can be helpful to review your business debt schedule before making significant financial decisions for your business, in particular before taking on more debt.
Frequently Asked Questions (FAQs)
How do you reduce business debt?
One strategy for a small business looking to reduce business debt is to increase revenue and decrease operating expenses to create higher operating income and have additional cash to pay off debts quicker, Berman said. A business also could refinance with lower interest rates to decrease its monthly payments, if possible.
How do you refinance business debt?
If you’re looking to refinance your business debt, there are many options; it will depend on your business’s situation and your reasoning for refinancing the debt, among other factors. Speak with your financial advisor or certified public accountant (CPA) to decide the best path for your small business.
What happens to debt when you sell a business?
During the sale of a business, what happens to its debt depends largely on the specific situation and the structure of the transaction. Potential options include the seller paying off all the business’s debt before closing, the buyer assuming the business’s debt, or funding the debt through escrow, taken out of the seller’s profits at the close of the sale.
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