Debt consolidation takes your outstanding debt and any loans you might have and rolls them into one larger loan, thus leaving you accountable to only a single creditor. In this way, you do not have to remember to pay multiple payments each month, plus you may be eligible for a lower overall interest rate when all such debts are combined.
Here are some questions you should ask before consolidating your debt:
Do You Have Multiple High-Interest Loans?
Debt consolidation loans are likely at a lower rate than what you’re currently paying on multiple loans. A lender will consider plenty of factors before this form of financing. They will analyze your time in business, credit score, annual revenue, and so on. If you’ve been paying these high-interest loans on time and are within good standing, you will likely have a higher chance of being approved for a consolidation loan.
Debt consolidation may not be needed if you’re making your payments on time and are on top of your finances.
Do You Need to Extend a Short-Term Loan?
Short-term loans usually aim to get immediate funds for a project or a bad period. However, things can change instantly, and business owners may need more time to repay the loan. With debt consolidation, there is a possibility of bundling that short-term loan with other debts and, in the process, gaining more time to repay the original debt in full.
Approach debt consolidation as strategically as possible. You can choose which debts you want to be consolidated. You do not need to consolidate them all.
Do You Have Good Personal Credit?
The interest rate for any loan is going to be affected by your credit score. Credit scores are generally evaluated as the following:
- Poor: 300-580
- Satisfactory: 581-670
- Good: 671-740
- Excellent: 741-800
- Outstanding: 801-850
While credit isn’t the only factor that affects loan terms, it certainly helps. If you have above a 700 score, you’re in a great position to get an optimal debt consolidation loan. It may be harder for those with scores below 620 to find a debt consolidation loan, but it is not impossible. It may be a matter of researching alternative and online lenders to find one who can work with your score and other business variables.
Is Your Business Revenue Up?
Has your business revenue increased in the past three months? If so, you may be a great candidate for a consolidation loan. Remember that most lenders like to see an income of at least $25,000. Your financial history may also impact your ability to qualify for a debt consolidation loan.
Should You Consider a Debt Consolidation Loan?
After evaluating the factors, where do you stand? If you fall within a more positive category, a business consolidation may be a great way to streamline your current debt and lower your rates.
If you’re in the process of applying for a debt consolidation loan, look closely at your terms. Is there a lower rate but it’s being stretched out over a long period? Are there early payment penalties? These ultimately could lead to higher payments. You’ll want to discuss these terms with your lender. If they can’t work with you to create the best deal for your business wellbeing, explore your options with alternative lenders, like First Union Lending.
First Union Lending Offers Optimal Debt Consolidation Loans
At First Union Lending, we can help you to consolidate your outstanding debt. First Union Lending offers numerous financing programs designed with small businesses in mind. Our business loans are fast and flexible, with financing options ranging from $5,000 to $2 million.
We have the funds to help!
Call today to learn more about our various financing solutions to help your business grow and become successful.