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.
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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.