If you have multiple business loans, you may want to consider consolidating your debt into a single monthly payment, optimally at a lower interest rate.
Here’s a guide to business debt consolidation.
What Does Consolidating Business Debt Entail?
The process is basically like other kinds of debt consolidation. The first step is choosing which business debts you wish to consolidate. Then, after applying for and getting a business loan, you use the funds to pay off debts you aimed to consolidate. You then make monthly payments on the new loan as per terms the lender established.
It’s not quite that simple, naturally, but you get the gist. You also must do homework to find the best terms, and you’ll need to check your credit report to see which loans you may be able to secure. Here’s a guide to the best debt consolidation strategies.
Small Business Debt Consolidation Vs. Small Business Debt Refinancing
The two financial strategies get lumped together but they’re not the same. Consolidating small business debt entails getting one new loan to pay off multiple current loans.
Also, the interest rate on the new loan may not be lower than the average aggregate rate you’re already paying. If this is true for you, debt consolidation may not make much sense.
With refinancing, you also take out a new loan but there are factors that set it apart from a business loan consolidation. For one thing, you could opt to refinance a single small business loan – multiple loans aren’t required.
Also, the chief aim of refinancing is typically to get a lower interest rate on business debt. Such a rate could also lower your monthly payments.
The overarching purpose of small business debt consolidation is to meld loan payments into one to make repayment more manageable. Scoring a reduced interest rate or payment is gravy.
Is A Business Consolidation Loan Right For Me?
Maybe, maybe not. Before applying for such a loan, you should understand that improvements in your personal and business credit score, and your personal and business finances, could result in a lower interest rate, longer repayment terms, and a better shot at approval.
Benefits To Business Debt Consolidation
One plus is a possible lower interest rate, which could save your business money. You could put those savings back into your business to fund your next growth project or to cover day-to-day expenses.
Repayment is also less stressful and can save you time since you have only one payment to make and don’t have to deal with multiple bills.
You also may see a credit score boost. When lenders, suppliers and vendors see that you have a history of satisfying debts on time, they may be more apt to lend to you in the future. Since you only have one payment to make monthly, the likelihood of having a late or missed payment decreases.
What Are Downsides?
For one, a lower interest rate isn’t guaranteed. It still depends on factors such as how much you’re borrowing, your credit profile, your business history, the type of loan, and the lender.
Also, your business debt consolidation loan payoff could be more expensive if you don’t pay attention to loan terms. For instance, if you extend the loan term to get a lower payment, it will take longer to erase the debt. You also may end up paying relatively more in interest charges in the long run.
In addition, be mindful that consolidating business debts may not resolve deeper cash flow issues. Try to shore those up then reassess your situation.
Now that you have a guide to business debt consolidation, you have enough information to inform your decision about whether to take out a loan.
An author of Namaste UI, published several articles focused on blogging, business, web design & development, e-commerce, finance, health, lifestyle, marketing, social media, SEO, travel.
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