If you’ve been looking into debt consolidation, you might be aware of its general advantages. For instance, if you have several loans that need paying off, I find it better to get them rolled into a single balance transfer account. That lets you pay them off them through a single, lower interest rate.
All you have to do is get on an EMI and make timely payments to prevent any potential defaults and bounces. Further, this can work to increase your credit score by the end of your tenure. However, most people talk about taking on personal loans for debt consolidation. What about small businesses that have several expenses to deal with?
If you’re a small business owner considering loan consolidation, I have you covered.
What is a business debt consolidation?
Similar to any other debt consolidation strategy, this is when you take on a new business loan to pay off previously existing and outstanding business debts. Doing this allows you to streamline all your existing debts into a single monthly payment plan or EMI.
This works similarly to personal loan debt consolidation in many ways. Not only does it make your debt more manageable, but it also gives you a longer tenure and lower interest rate. Over time, if you’re consistent with your payments, it will work to increase your credit score, which can come in handy for future loans. This is especially advantageous for small business owners who have many expenses to work through.
How can you consolidate your business debt?
When you approach a lender or bank to get your debts rolled over, I advise you to clarify the following information beforehand.
-
Figure out how much debt you owe exactly
This is where a business loan calculator can come in handy to tell you the figures you’re working with. Even if you consolidate your loan, it is only with it if you are sure you’ll have the funds to pay it off each month. So, before you approach a lender, perform your due diligence on how much you actually owe.
-
Figure out what your credit score is
Your creditworthiness is the most important factor when taking out a new loan. This determines how much interest rate you’re likely to get. As a rule of thumb, the better your score, the lower your APR. Hence, if your score is lower, I advise increasing it as much as possible before you get a consolidation loan.
-
Look at different business debt consolidation offers
There are many ways in which you can take out this loan. You can look into bank loans and credit unions, private lenders, or non-banking financial institutions. You should also determine whether your loan is secure or unsecured. Checking for organizational fees, extra charges, and penalty charges early can also prepare you better for the tenure.
As a rule of thumb, you should always shop around for different offers. Never settle for the first bank or creditor you see, as it’s quite likely that there are others suiting you and your business better.
Signing off
A business loan consolidation can be worth it for many reasons. Not only can you get rid of debts faster, but in a more streamlined way. However, be cautious that it doesn’t necessarily guarantee that you’ll get a lower annual percentage rate.
Further, it is important to know that debt consolidation is still a debt that needs repaying, just made more manageable. If you have the funds to repay your debts, it is a far better option than bankruptcy or closing down your business. So, take some notes and try doing the best for your small business.
