Debt

Small Businesses To Use Tax Savings To Pay Down Debt

Small businesses polled by online lender LendingTree expect to see savings as a result of the tax reform bill signed into law late last year, with many planning on using the tax savings to pay down debt.

According to LendingTree’s survey of 1,000 small business owners polled at the end of the month, 65 percent said they expect to see savings, with 35 percent signaling they will use it to reduce debt. Of those polled, 15 percent said they plan to pass the tax savings on to employees in the form of wage increases and more benefits. Meanwhile, 9 percent said they would increase non-wage expenses, while just 7 percent said they would hire more employees. More than a quarter said they don’t plan on doing anything differently with their business despite the tax reform.

“It’s hard to blame business owners for earmarking their tax savings for debt,” said LendingTree in a blog post highlighting the research. “Nearly half of the small business owners we surveyed (46 percent) said they have business-related credit card debt.” Of those, 48 percent said they carry debt on a personal credit card, while 27 percent carry debt on a business credit card and 25 percent have debt on both personal and business credit cards.

The survey also revealed that 27 percent of small business owners need debt to cover the costs associated with starting up the business, while 55 percent said they tapped their own savings to do so. Of those that tapped debt, 12 percent took business loans, 7.5 percent used credit cards and 6 percent relied on a personal loan. Of the survey respondents, 1 percent used a home equity loan, LendingTree found.

On a more troubling note, the survey found that close to 80 percent of small business owners don’t have a six-month emergency fund. The tax savings will come in handy for that group and for the even more cash-strapped, as well as for the 70 percent who only have three months of cash on hand. Of the survey respondents, 21 percent didn’t even have a month’s worth of money in reserve.

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