Your business will require capital as it grows. While some companies are fortunate enough to keep debt in check, others soon realize they have gone too far down the wrong path. One small business loan turns into two. One maxed-out credit card leads to another. You get the point: debt can begin to spiral out of control.
Upon reviewing your company’s finances, you will find yourself in one of two positions:
- You are comfortable with your current standing, including how much debt is on the books.
- You realize your business is bogged down with entirely too much debt, and that you need to make a change.
Debt consolidation: an idea to consider
As you review your debt, answer this question: Do you have one loan or many? If you have only one loan, it is simple to keep track of the terms and conditions as well as the monthly obligation. It is simple to make one payment per month. On the flip-side, if have more than one loan, you are faced with another question: Could debt consolidation be the best step for you and your business?
As the name suggests, debt consolidation is nothing more than using one loan to pay off many others. In the end, you are left with a single loan through a single lender.
Benefits of business debt consolidation
Now that you understand the finer details of debt consolidation, it is time to turn your attention to the benefits. With business debt consolidation, you can:
- Improve organization by eliminating multiple loan payments
- Reduce monthly cost
- Deal with a single creditor in the future, as opposed to multiple lenders
- Do it without a negative impact on your credit score
Most business owners are concerned about one thing and one thing only: reducing their monthly cost. Which is a great priority to have. With business debt consolidation, you are looking for a lender to offer you a lower rate than you’re currently paying on these loans.
Also, don’t overlook the importance of the other benefits. For example, your life will be much easier when you only have to make one monthly payment, as opposed to several.
The consolidation process
If you reach the conclusion that business debt consolidation is the best strategy, it is time to move forward one step at a time. Here’s the best way to make it happen:
Step 1: Gather all the necessary information. There is a lot that goes into consolidating debt. More loans means more paperwork. Before you do anything, collect as much information as possible regarding your lender and loans.
Step 2: Determine what type of debt you want to consolidate. There is no rule saying that you have to consolidate all of your debt. Take, for example, a company with four loans. You may want to consolidate three, while paying off the fourth in full.
Step 3: Compare your current situation to the benefits of consolidating. This means calculating a total monthly payment across all loans. When doing so, take into consideration principal and interest payments, along with any fees. Once you know your current obligation, compare it against the final number after consolidation. Are you saving money? How much? Is it worth moving forward?
Step 4: Find a debt consolidation lender. Some lenders offer business debt consolidation solutions, but others do not. Once you have a list of those that do, you can focus your time and attention on the following:
- The application process
- The type of loan being offered to you, including the term and interest rate
- Customer service
- Amount of time between application and approval
Note: There is no guarantee that you will be approved for a business debt consolidation loan, but you will never know until you complete an application.
Step 5: Review your situation one more time. Now that you have selected a lender, you can work with them to get a clear idea of what will happen if you move forward. These are the types of questions to ask:
- What is the term of the loan?
- What is the interest rate?
- Is the rate fixed or variable?
- What is my total monthly payment?
- Are there any fees?
- Do I have the option to pay off the loan early?
Once you consolidate your business debt, there is no turning back. You have taken the leap, and you now have to deal with your new situation. This is why you want to be 100-percent sure of the decision before signing on the dotted line.
When to consolidate business debt
It doesn’t matter if you own a restaurant, pet supply company or some other type of business; there is a chance you have taken on debt at some point. But the question is — could you save your business money and stress by consolidating debt?
If you are unsure of whether or not now is the time to consolidate business debt, you don’t want to act just yet. First, answer these questions:
- Is your current level of debt holding your business back from achieving greater success?
- What is the short- and long-term impact of debt consolidation?
- Do you have the time necessary to move through the consolidation process in the appropriate manner?
Once you answer these questions, while also focusing on the pros and cons of consolidation, you will have a better idea of whether now is the time to take action.
We recommend that you contact your business or personal financial advisor for advice regarding this or any other serious financial matter.