Published On: Thu, Apr 12th, 2018

A Few Things That All Businesses Need to Know About Debt Consolidation Loans in 2018

A new business embraces a significant number of risks while starting out. Merely taking a step towards launching a business is a considerable risk in this market. Every start-up and business begins with more than one loan. Business loans, quick funding and bridging loans often find their way into a business infrastructure. Although business owners refrain from entertaining thoughts of bankruptcy, the surmounting number of debts only pushes them closer to it.

You may think managing debt payments is easy. However, modern-day finances often lead to multiple debts from multiple sources. That leads to different interest rates, repayment terms, and various payment dates. Hundreds of businesses start each year, but only 50% of them survive past the first five years. Studies blame the increasing rates of interest and multiple loans for these failures.

photo/ Gerd Altmann

What makes consolidation loan the leading choice for businesses in financial distress?

How can a few debts cripple a company’s finances? Who is to blame here – the multiple debts or the business owner who refuses to seek help for debt management? If you have various credits that are simply crying for expert attention, you should check out a reliable company like NationalDebtRelief.com for proper debt counseling services and management guidance.

According to experts, out of the 30% start-ups that survive beyond the first decade seek help for consolidating their debts. Leading businesses avail debt consolidation loans to reduce APRs and pay their dues on time. Debt consolidation is a process that collates all outstanding debts. Taking out a loan to pay off the entire debt amount to all current creditors and then paying the debt consolidation company in small installments is the standard process of debt consolidation. In fact, data from the Federal Reserve’s Small Business Credit Survey 2017 shows that 25% of the businesses that applied for business loans during the last quarter of 2016 later went for debt refinancing.

Do you really need a consolidation loan?

There is no one best solution for all business finance problems. Just because something worked for a friend or the owner of a Fortune 500 company, it does not mean that it is ideal for your business model too. Contrary to popular belief, business debt consolidation is a highly personalized debt solution for small businesses, start-ups, and micro enterprises. It may not be the best solution for all companies in the US. Therefore, before applying for a business debt consolidation loan, you need to thoroughly check if the financing option is suitable for your company.

Sometimes, all a business owner needs is a smart accountancy service. At other times, businesses might need debt counseling to prioritize debt payments and credit card loans. It is worth noting that credit card loans are especially notorious, and they can easily cause your business cash flow to spiral down into the abyss. They can drain business funds unless you can manage them properly. A debt counselor can help you either pay off the costliest credit card loans or other quick loans or help you transfer your debt to a zero-interest credit card. Often choosing to move your credit card debt to a low-interest credit card significantly helps to reduce the outflow of cash per month.  

What are the benefits of a consolidation loan for businesses?

A business debt consolidation loan might be ideal for you if you have multiple small and medium, high-interest loans. You might choose to make the payments more manageable by paying a more substantial sum for the principal loan amount than the interest. A debt consolidation loan can bring your business –

  • A flat and manageable interest rate
  • A reduced monthly payment
  • A reduced APR
  • Better cash flow every month
  • A single payment on a designated date or a steady monthly deduction from your business account
  • Fixed repayment terms

To opt for a business consolidation loan, you must ensure that the new monthly payment is significantly lesser than it was before. If the difference is not significant, you might want to try other debt management options before considering a business consolidation loan.

A consolidation loan can also work towards bettering your FICO score. Several companies around the world have taken out business debt consolidation loans to halt plummeting credit scores and gradually improve them too. Companies often suffer from a terrible bout of steadily falling credit scores when they fail to meet regular loan payments and fail to pay the penalties due to missed deadlines. Lapsed payments and penalties often deplete a company’s financial profile and render them unable to apply for other loans in the future. A consolidation loan gives a business a second chance by extending the payment dates and providing enough funds to pay off all creditors and work on their credit scores.

A few drawbacks of consolidation loan you must consider

Just like all other funding options, debt consolidation loans also come with their own set of drawbacks.

Higher rates for bad FICO scores

Depending on the company, you might get a higher than usual APR and interest rate due to a poor credit profile. Finding a non-profit company to fund your business in the times of crises is not as easy. It takes time, experience and guidance for finding a legitimate company that is ready to offer amicable rates to a business with a poor credit profile.

Extended payment periods

While lower monthly payments and flat monthly interest rates make a debt consolidation loan sound like a dream for all business owners, you must not ignore the extended payment periods that consolidation loans might bring. Always consider the total amount at the end of the term and not just the annual payment while comparing your consolidation loan options. Not choosing the right one can cost you more than the value of your current outstanding loans at the end of the extended payment period.

People fall for rolling debts

Most importantly, a consolidation loan is a way towards financial freedom. Getting approval for a debt consolidation loan is not the freedom or success in itself. You must not consider it as a way of getting rid of all outstanding loans. You are merely transferring the loan amount from multiple parties to one creditor.

Debt consolidation loans might be the solution to your business debt problem. Do not opt for it because your competitor or your friend is doing so. Assess the situation on your own or get a financial advisor to look at your business accounts. A correctly timed consolidation loan can become the savior of your business finances.

Author: Charlie Brown

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