Should You Look into Business Debt Consolidation?

Especially during this challenging financial time, many smaller businesses have taken on many debts to keep moving forward, often just to survive. The question is, what now? How do you manage all of your debt and still find a way to keep the company profitable? And it’s not just the amount of money you have in debts, but also simply managing multiple debts. As small business owners can get pretty busy, this is yet another thing on their plate that they don’t need.

Debt consolidation can be an intelligent way to manage your current debts. Debt consolidation is when you bring numerous debts together and merge them into one streamlined loan repayment—this often means smaller overall monthly payments. And this additional money in your pocket every month can be a huge help, particularly now.

Benefits of Debt Consolidation

We’ve mentioned that debt consolidation streamlines your monthly payments, thus easing some of the burdens of multiple loan repayments. Among some of the other critical benefits of consolidating business debt are:

• Potential lower interest rate. While a lower rate is not always guaranteed, in many instances, the business consolidating debt will get an overall lower rate. Versus the higher rate you are paying on many individual debts, this one lower rate could equate to more money in your pocket each month. And this, in turn, means that cash flow will be improved.

• Lower monthly payments. Yes, you might get a lower interest rate which could help with monthly payment amounts, but you might also get a longer repayment term. For those businesses struggling just to keep up every month, the longer term could translate to lower monthly payments. And again, this means more cash in your account.

Build better credit. In other words, let’s say you do have lower payments each month. This may make it easier to remit your loan payments on time, perhaps even pay the loan off early. This lends itself to helping you achieve a better credit score in the long run.

There are also some downsides to debt consolidation that you should be aware of before moving forward:

• You could ultimately pay more in interest. While you may be paying less each month with a more extended repayment period, this could add up to more in interest over time. It would help if you weighed whether or not you want to pay less right now each month or more over the term of the loan.

• Lenders will assess your consolidation application like they would other business loan types. If there are several red flags associated with your application, you could end up paying a higher interest rate. You may not get a lower rate.

Preparing Your Debt Consolidation Loan Application

Just as you would for any business loan, you want to take your time and carefully prepare all relevant materials before applying for your debt consolidation loan.

Know your credit score. If you currently have no idea where your credit score stands—both business and personal—then now is the time to get familiar with those scores. Check for any errors or inaccuracies. Also, be sure to close any old accounts that may still be open. And you could also see where you might begin to pay down some of your debt. Start with the higher interest rate debts first. The less obligation you have, the better your odds of approval.

Gather your financial documents. The quicker you can make the process on your end. You will get your debt consolidation loan. In contrast, each lender might request varying information, such as financial statements, tax returns (personal and business), a thorough list of all debt you currently have, and future sales projections, among other requested documentation.

Find the perfect lender. While there are a variety of places you can go for debt consolidation loans, you might want to start by researching alternative and online lenders as they tend to specialize in helping small businesses. Traditional banks can have much more stringent standards; approval odds are going to be lower than with an alternative lender.

Close on the loan. Once all steps are complete and your loan is approved, you will sign the final papers, and the debt consolidation loan is yours. How long this takes will depend on the lender. Some clients receive the loan funds in as little as two days with online lenders. With traditional banks, the process can extend to weeks.

First Union Lending is Here for You!

We have a financing solution for your small business. If you do need a debt consolidation loan, we can help. Even if your credit score is not exactly where it should be, we likely still have an option for you. Call today! 

Published in Debt Consolidation

Related Articles

Responses

Your email address will not be published. Required fields are marked *