Everything you need to know about Business Debt Consolidation Loans
If you have existing debt from loans and are having difficulty handling your payments, it may be time to start considering a Business Debt Consolidation Loan. A Business Debt Consolidation loan could help you free up cash flow and ease your financial stress.
So How Do Business Consolidations Work?
A business debt consolidation loan will allow you to refinance your current debts by consolidating them into a single repayment plan. In addition, these loans will usually provide more optimal conditions such as less frequent payments and lower rates. Therefore, it is a great option for debt restructuring if you want to make repaying your company debt more manageable and accessible. We have created this guide to help support you through this process. Here, we will explain how business debt restructuring loans work, what your choices are, and how to properly merge your debt, so that you have all the details to determine what the best approach is for your business, and if a business loan consolidation is something to consider.
It is first important to understand how business debt and consolidations function, before delving into the best solutions for business debt consolidation loans. Company debt is not necessarily a negative thing, and debt funding is still one of the most popular and best ways to finance company growth. Three-quarters of all small business financing comes from debt, according to the Small Business Administration. However, whether you require funding immediately, undergo an emergency, or any number of various other situations, you can sometimes end up with financing that is very expensive. Taking on this debt at the present time may resolve the current turbulences the business is experiencing, however, the rates will be costly in the long run and can be detrimental to the general finances of the company. It is in these circumstances that you may want to consider a business debt consolidation (restructuring the company’s debt).
If you are dealing with various repayment plans on multiple company loans, it is feasible to turn such different accounts and obligations into a single credit plan with a stable interest rate and a standard payment plan through receiving a small business debt reduction loan.
Consolidations Vs. Refinancing
Now that we have a fundamental understanding of what debt consolidation is and why it might be worth contemplating, let’s take a peek at a major difference between that and refinancing. Often, individuals interchangeably use the words debt consolidation and debt refinancing. While refinancing and debt consolidation do resemble each other, understanding that they are not the same is important.
In debt consolidation, you take all the current loans or goods for lending and merge them into an independent loan. On the other hand, when you refinance a business loan, you take out a new loan at a reduced interest rate in order to pay down a higher-rate loans. To clarify, refinancing is simply exchanging one loan with a new loan at a lower interest rate, whereas debt consolidations would be taking multiple loans and consolidating or converting them into one loan.
Furthermore, consolidation of debt does not always lead to a lower interest rate. Ideally, a company debt consolidation loan would save you cash, however by going from many lenders to one, the focus of debt consolidation is to make payments more manageable. As such, you do not always get a lower interest rate. If consolidating your small business debts, you will want to make sure you are working with a reliable and reputable lender, so make sure to research and some calculations to decide if consolidating your business loans actually makes sense for your business.
Let’s discuss the best choices for company debt consolidation loans with all of this in mind. Ultimately, you would want to search for long-term loans as you compare your alternatives, so you can consolidate your debt and pay it down in reduced sums over a longer period of time than your existing lenders provide.
Apart from this overall criteria, the business loan opportunities for consolidation would rely primarily on your individual case. Factors such as credit score, revenue of the business, and the lifespan of your firm can also influence the business restructuring loans that are available to you, as in other business lending items.
So now you might be wondering what do you have to do to consolidate your business debt?
Identify Existing Business Debts: You will want to look through your current business loans and the details of each, including the sum owing, the lender, the interest rate, the repayment date, and the payment plan.
Next you will…
Search Prepayment Penalties: You will want to remember that when taking a business consolidation loan you are taking a larger loan to pay off several smaller loans. Keep in account that by paying off the smaller loans before their maturity date you may set off some prepayment penalties for paying off your loan before its maturity date. This is because the lenders are losing on interest payments they would have collected from you, if the loan had not been paid off early. Before consolidating business debt you will want to see if your existing loan includes these fees.
Assessing Overall Business Debt: Now that you have assessed all of your companies debt, and have the specifics of each of your loans and the prepayments penalties, you should decide which loans you would like to consolidate into a single loan.
Calculate the APR Average: First you’ll want to consider your current loans’ average annual percentage rate (APR). It is important to note that an APR is not the same as an interest rate. APR, including all expenses, is the annualized interest of a loan which offers you an accurate estimate of the loan’s expense.
Search for the best Business Consolidation Loan and compare APR fees: At this stage you will want to really search for the best company debt restructuring loan for you. When you have acquired the loan choices for company debt restructuring, you may want to compare the APR of your old loans with that of the potential new loan. Hopefully, with the upcoming loan, you would be eligible to get a lower APR than you have with your present loans.
Although receiving a lower APR on your new debt consolidation loan would be nice, there are still other considerations to remember. For example, there will still be a much longer period for the new loan, which means you may wind up paying more interest over time.
Decide whether to consolidate: In addition, consolidating your business loans into one loan often means that you will pay interest on interest, on top of the original interest you owe, you can pay accrued interest on the current loan. On the other side, a debt restructuring loan will of course, preserve cash flow and encourage rehabilitation.
Ultimately, with your particular finances and goals, you’ll need to decide whether the new loan makes sense for your company. You may want to contact your corporate accountant or other financial advisor for guidance if you have difficulty going through the numerous company loan interest rates and conditions.
Pay Off Existing Debt: If you decide to follow through with a debt consolidation loan that you qualify for and it is beneficial towards your business. In most circumstances, the capital that goes to pay off the former small business loans will never really be seen. The new lender is going to pay the money to your current creditors, not you. Now you will have just one lender now and this lender will start delivering statements to you. You will want to stay on good terms with the lender now that you have your new consolidated loan, to avoid penalties by keeping the loan payments on schedule.
When attempting to determine whether a business consolidation loan is the best option to pay off the current loans, there are a range of specifics to remember. If you are still unsure if a debt restructuring loan is best for your business, here are a few points you can take into account:
If the existing debts already have low interest rates, it is unlikely that your business would profit from business debt restructuring. Generally, the higher the interest rates on your current debts, the more effective the restructuring of small business debt would be. You could be able to merge your company debt into one multi-year term loan, or at least a loan of longer duration than your existing contracts have allowed, if you have several short-term loans that you would need more time to pay off.
Bear in mind, though, that this debt consolidation goal could quickly produce an expensive and risky cycle. Be sure that the income you depend on is adequate to fund the entire cost of the new debt over the business period, plus additional interest that may accrue.
Additionally, if you’re trying to consolidate company debt, you will likely be required to have a good personal credit. In addition, once you have reached the one-year mark from when you obtained the initial loan and the business and personal finances have improved, you would be qualified to obtain better, more affordable rates.
With all of this in mind, it will inevitably be up to you to decide what is best for your business. If you believe that a business debt consolidation loan is the route to go, you would want to be sure that you consult with lenders closely, weigh all the choices, and pick the approach that would be most effective in the long term for your finances.
- Equipment Financing vs. Equipment Leasing
- Pros and Cons of Business Equipment Financing
- Equipment Loans for Startups
- Who Qualifies for Equipment Financing?
- How To Get Financing for Equipment
- In Summary
There is a form of business loan called equipment financing, primarily for the purpose of buying new or used equipment such as automobiles, machinery, or technology. You will obtain loans for products comparable to up to 100% of the price of the equipment you are trying to acquire. Over time, these loans are then paid back with interest.
The financing of business equipment, comparable to invoice financing, is a type of asset-based financing in which the equipment itself functions as security for the loan. For this purpose, lending for machinery is also cheaper than other forms of small business loans to apply for. For entrepreneurs, or firms with mediocre or low credit ratings, equipment loans may be perfect choices along these lines.
So how does equipment financing work?
Usually, the financing of machinery performs similarly to a business term loan. For the purpose of buying fresh or used business supplies, you take out a loan and pay it with fixed payments back over a set period of time.
As we mentioned above, the amount of money you may receive can equal up to 100% of the value of the equipment you are trying to acquire. Although the amount can differ, based on the quality and nature of the equipment, as well as the lender and your company credentials. Business equipment financing is a type of asset-based financing, implying that the equipment itself is used to back up or secure the loan. Generally speaking, this suggests that you may not have to offer up additional collateral and you will not be required tto sign a personal guarantee.
However you will be expected to have a down payment of 10% to 25% of the equipment funded by you. The higher your down payment, the lower the interest rates you are likely to receive. Overall, equipment financing rates will typically vary from 4% to 40%, depending, of course, on the lender, the qualifications of your company, and the equipment you are buying. Keeping this in mind, the terms of repayment on financing equipment are normally five or six years, but certain lenders may provide longer terms, up to 10 years. In addition, some lenders will focus the repayment conditions on the equipment’s projected lifespan, but they are also entitled to claim their loss if you default on the loan and they have the ability to seize the equipment and liquidate, or sell, it.
Equipment Financing vs. Equipment Leasing
It is important to distinguish the difference between equipment financing and equipment leasing in order to understand how equipment financing works. While there are some subtle differences between the two, the primary differentiation is that you own the equipment at the end of your repayment period with an equipment loan. With equipment leasing, on the other hand, at the end of the term, you do not own the equipment. Alternatively, you have the option to purchase the machinery directly, or enter into a new lease for the machinery you need, similar to leasing a car. Generally, in the long run, equipment leasing is more costly than equipment financing.
Pros and Cons of Business Equipment Financing
When it comes to it there is no question that equipment finance is a great choice if you are searching for funds to buy equipment for your business. This method of finance will also provide the most ideal rates and requirements for equipment-specific financing. However, equipment financing might not necessarily be the perfect option for every business and circumstance. We will go through all the pros and cons of equipment financing in order to help you decide whether it is right for your needs or not.
- Fast funding for equipment purchases: Although it can take weeks or months to finance certain other forms of business loans (such as bank and SBA loans), equipment loans are usually considered a very quick method of financing.
- Equipment itself functions as debt collateral: One of the greatest advantages of loans for equipment is that they are self-collateralizing. Therefore the machinery itself secures the debt instead of needing to offer up real estate or other commercial properties as leverage. In addition, you will also be able to negotiate with the provider to avoid signing a personal pledge on the loan since the machinery itself acts as collateral.
- Easier criteria for qualification: relative to other forms of business loans, machinery finance is far easier to qualify for. This is why loans for machinery are a perfect choice for start-ups or firms with poor credit score. Generally, since the machinery secures the debt, lenders are also able to partner for firms with lower credentials, rendering it less expensive for lenders owing to the self-securing aspect of business equipment lending. In addition, most machinery lenders submit to company credit bureaus your payment background, and ensuring on-time payments can boost your credit history and make it easier for you to apply for more loans in the future, which is especially useful for newer firms and firms with bad credit.
- Affordable interest rates: Machinery funding rates usually vary from 4% to 40%. Even Though the interest rates do vary, they are generally affordable. You can earn rates that are comparable to bank or SBA loans if you slip into the lower end of the interest rate spectrum. In addition, by having the Section 179 corporation tax deduction, you will be able to save more money on the expense of your supplies and your income.
- Limited documents and fast application process: funding of business machinery is accessible from both banks and alternative lenders. As you would imagine, there would be the quickest and more streamlined processes for new internet lenders, but in general, applying for equipment financing is a quick and easy procedure. Again since lenders are not as concerned with the credentials of your company, you would typically find minimal criteria for paperwork, especially relative to other forms of financing.
- By the time the loan is fully repaid, equipment could be obsolete: Simply the biggest downside to business equipment financing is that by the time you have repaid the loan and you own the equipment, the equipment could be outdated or obsolete. This is one of the explanations why as we described above, certain business owners opt for machinery leasing instead of financing. Furthermore, it is important to remember that you do not own the machinery until you have paid off the loan.
- A down payment may be required: In some cases, you will need to put down 10% to 25% of the value of the equipment to access funding. It may be more difficult for you to get equipment financing if your company does not have the money required for the down payment. If your down payment just meets the criteria of what is required, this might increase your interest rates.
- Applicable only to companies that need to buy equipment: equipment loans are of course, a very specific type of financing that meets a very specific need. Therefore you will have to explore your other options if you need financing for another business purpose.
Equipment Loans for Startups
For several start-up firms, equipment finance, as we have described, is a worthwhile choice, as these loans are simpler to apply for relative to other forms of business loans. Again in order to be eligible to obtain equipment loans, with the equipment acting as collateral on the loan, you do not actually require several years in company or excellent finances.
Of course, for all of these loans, it is necessary to note that you are more likely to encounter higher interest rates relative to older firms. However, that being said, the stronger your company’s financial statements are the more freedom you would have to negotiate with the investor as a start-up to access the most ideal costs and terms.
Who Qualifies for Equipment Financing?
Many organizations may qualify for machinery finance loans. How much you qualify for and the interest rate you would pay depends on the size of the equipment, the financial background of the company, and your credit score. However, if the credit record is less than stellar, equipment finance may be an amazing choice, as the equipment serves as collateral.
In reality, lenders of equipment are only as concerned about what is securing their loan as with your history of borrowing. So if you are looking to spend your small business equipment loan in a high-value (and value-retaining) piece of equipment, then equipment lenders might be able to partner with you even if your finances are not flawless.
How To Get Financing for Equipment
So if you think one of these top loan choices for equipment could be right for your business, you might be wondering how to actually get the funding you need.
So if you think one of these top loan choices for equipment could be right for your business, you might be wondering how to actually get the funding you need.
Find the equipment you would like to buy: Identifying and selecting the piece of equipment you would like to buy is the first prerequisite for getting equipment financing. Many lenders will request that you give an equipment quote in the application form, as well as information regarding the equipment and its state. It is important to know as much as possible about the equipment you want to purchase.
Test your qualifications: You will be able to start looking at your choices and deciding where you would be able to apply after you have completed the required homework on the equipment you will like to buy.
As seen above, the basic conditions you would need to fulfill to apply for the funding of business equipment will differ depending on the provider, but criteria (annual salary, period in business, credit score) would normally be far more versatile relative to other forms of loans. However, with this in mind, the stronger your financial statements are, the more likely you would be to access the most ideal rates and conditions.
Complete your application: Eventually, you will be able to plan and apply your loan application after you have assessed your credentials and qualifications and then you can decide which lenders are the right choices for your firm.
Usually, very simply and conveniently, you would be able to complete your machinery loan application online. Financing of machinery typically requires limited paperwork and a simplified method of application. However, this being said you should expect to provide any if not any of the following:
- Driver’s license
- Voided business check
- Bank statements
- Credit score
- Business tax returns
- Equipment quote
Online lenders will typically process and finance applications for business equipment funding in only a few days, often quicker. On the other side, if you qualify for a machinery loan from a branch, you will typically have a longer period to finance it.
Undoubtedly, you will want to review options with different lenders and guarantee that you receive the strongest, most favorable rate for your company before you sign an equipment loan agreement and enter the closing process.
Equipment finance is a perfect option for financing sales of company equipment. Although some forms of loans may be used to fund these transactions, equipment-specific lending mostly comes with competitive rates, adjustable conditions, and rapid financing periods. In addition, equipment loans are far more available to start-ups and companies with poor credit as a self-collateralizing source of funding.
However, that being said, equipment finance would not be correct for any company especially if you are a highly qualified company who can reach much lower rates through a long-term bank or SBA loan. Ultimately, however, to find what is right fit your business needs, you will want to take the time to analyze and evaluate all of your business loan choices.