So, you have banked all your aspirations on your new business!
Fortunately, you have been successful. In today’s marketplace, almost 80% businesses fail within a span of 18 months of their inception. If you have stayed longer in the game, you have performed well!
However, there are complex, changing times which do not act in our favor. Perhaps your industry domain has taken a beating with the arrival of new players. On the other hand, maybe the cost of an essential ingredient that you need to keep your business floating has increased exponentially.
It might make you raise the price of your products and probably lose out on your niche customer and overall sales. It makes an otherwise structured and balanced business cash flow go haywire, taking you far away from the profits you were expecting.
It is a classic situation where you ought to repay all the credits and loan payments before all of it piles up to intense pressure, making you lose your sanity. It is a time for critical thinking and smart financial decision making. A wise way out is to opt for a small business debt consolidation loan.
What is debt consolidation?
The term debt consolidation refers to merging multiple loans into one large debt. Once you acquire a debt consolidation loan, you get to pay off the various lines of credit. Going by the standard, debt consolidation is utilized to fund several non-asset debts, for instance, medical costs, student loans, paydays, credit card bills and the like.
If you are going for a debt consolidation loan, you will have to sign one check rather than 4 or 5 a month. It is the smartest way out of a messy financial situation.
When to say yes to small business debt consolidation?
Most people instantly think of switching to debt consolidation when facing challenges with increasing debts. That is when they struggle to make ends meet and pay all the bills on time, and they end up taking up more loans to meet the necessary expenses. When small businesses hit their adversity curve, that is when debt consolidation seems like the only way out.
It is understandable that you want your loan troubles to vanish fast! However, the decision to go for debt consolidation needs to be taken seriously. It is essential for small business owners to look at it as a long-term decision and commit to the process of timely repayment. Typically, an entrepreneur may encounter two situations.
· The first scenario
You have a favorable business record and credit history. You have taken out a few short-term loans to address few expenses that your estimated budget failed to cover. Since now the business is running out, you wish to combine all debt amounts to get a reduced interest rate. It is a wise business decision, and since you have a sound credit rating, going for a debt consolidation loan with a standard partner under favorable terms should be easy.
· The second scenario
It is not the best-case scenario and is laden with challenges. Here, you are juggling several loans that you took as desperate business moves. Due to your questionable credit rating, you may not have received the best debt terms. Until there is a change in your financial condition, a debt consolidation loan will not be the ultimate solution. Here, the wise way out is to go for credit counseling till your credit score goes slightly high and then opt for debt consolidation.
Hence, the moral of the story is not to impulsively switch to any small business debt consolidation agreement just because your cash flow is slim. Practically evaluate your financial condition and assess if taking this loan will be beneficial or not.
The benefits of debt consolidation loan
For several small businesses that are struggling with debts and high-interest rates, debt consolidation has been a boon. Here are some of the benefits that you can expect.
· Savings on your interest rate
When you have multiple loans with an increased amount of APR (annual percentage rate), debt consolidation loan with a low rate of interest can make you save on the overall interest. For instance, if you merge the balance of 2 credit cards having an APR of 23.99 and 16.24% in a debt consolidation loan having a 15% APR, you will make savings on the interest.
In this type of loan, the interest rate is lesser than credit card rates, which enables you to add to your savings. In addition to that, loans come with a finite repayment period, usually not stretching more than a couple of years. That is not the same for credit cards.
· Reduced monthly payment
When you say yes to a debt consolidation loan, it enables you to make payments on time, which reduces the chances of defaulting. Your monthly installment is minimized to a considerable extent. So even though there is more payment to clear off, all of it will be hassle-free and seamless to manage. It reduces the chances of falling for any extra fee along with APR penalties that occur when you miss a payment.
· Enhanced credit score
Debt consolidation improves your credit score. Here, you have the chance to transform the score that deteriorated due to poor loan management. If you manage to maintain good financial habits, your credit rating should remain decent. The obvious outcome of this includes a reduced credit utilization rate that helps to boost up your credit score and acts in your favor.
Today, in the gamut of established business houses, small business owners also dream of expanding customer base and earning more ROI. Having a limited capital to start and experiment with various ideas, often small businesses fall prey to fluctuating market conditions or incorrect business decisions that land them in heavy loans and poor credit.
When there are too many loans to repay, and a small business wants an effective solution, debt consolidation loans prove beneficial.
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