Business debt consolidation is one of the strategies that you can use to improve the financial side of your company.
Most of the time, businesses come into existence because of debt. Aspiring business owners opt to borrow money to help build their dreams of becoming entrepreneurs. If you are lucky, your business will take off and you will be able to pay the startup money you borrowed. But if you are like the unfortunate ones, there is a high chance that you will struggle to get your business to improve. At least, have enough improvement to help you stay afloat and pay off what you used as your startup money.
According to statistics, cash flow issues cause 82% of businesses to fail. It is not specified in this data if it is caused by debt. However, if you know how destructive debt can be, we can safely assume that business loans might have contributed to these cash flow issues. After all, the profit earned had to be shared with debt payments. Instead of using it to invest in the growth of the company, the business finances is limited because the capital funding had to be returned.
This is the reason why companies with debt should consider business debt consolidation as soon as possible. Entrepreneurs should not wait until it is too late for the business. They should use this debt relief strategy to combine their multiple debts into a new loan. When the new loan is approved, it is used to pay off the old ones. The business is left with a single loan with better terms, lower interest rates, and a more favorable repayment plan.
Why business debt consolidation makes sense
The use of debt in business is not uncommon. In fact, a lot of companies use debt regularly. It is perfectly alright to borrow and you will find it easier to get approval. As long as you can prove that the business is profitable, you will get approval for the loan. Even better if you can prove that it will be used to expand the business, thus making it even more profitable.
While using debt is the norm, that does not mean it should be used recklessly. If you find signs that your debt is starting to threaten your business, you might want to consider getting debt consolidation help. It can bring a lot of benefits to the financial side of your business. Here are the reasons why it makes sense to use business debt consolidation.
Lower interest rate
If your business is used to debt, this should not come as a surprise. It is a common goal for businesses to do everything they can to reduce the interest in the loans they will borrow. In fact, you should always look for the one with the lowest APR. This is one of the ways that you can save money on loan payments. If most of your debts at the moment have high-interest rates, then debt consolidation makes sense. It can give you the chance to lower the interest that you will pay.
In case you notice that your debts are using up most of your monthly budget, business debt consolidation gives you the chance to restructure your payments. If the monthly debt payment of $5,000 is too much for your business, you can consolidate it into a new loan that will allow you to pay only $4,000. It is just like refinancing but the best part about it is you can combine multiple debts under this new one. It will give you more room in the business finances. You can use the extra money from your cash flow to improve your business operations. Of course, a lower monthly payment means you will be in debt longer. But if it is what you need to get your business operations running smoothly, then it should work perfectly for you.
Easier management of cash flow
Since you are no longer keeping track of multiple debts, it is easier to manage the cash flow of your business. When you monitor a lot of details in your cash flow, there is a higher chance that you will make a mistake. But with more simple debt payment, it is easier to control your cash flow. And since you are no longer putting too much effort in monitoring your finances, you can focus on other aspects of the business.
Consistent payment plan
You have to realize that business debt consolidation is more than just combining your debts under one account. It is an opportunity to improve your business finances. It will not just help you monitor your cash flow easily, it will also allow you to make plans easily. Some business loans come with variable interest rate. This means your monthly payments will vary. If you want to change this, you can opt for a fixed rate. This is a good idea if your business has a better credit score than when you borrowed the original one. You can get a better interest rate. If the average rate is lower too, that will be better for the business debt consolidation loan that you will borrow.
With a more consistent payment each month, it is easier for you to budget your finances and control your overhead expenses. If you have to make plans for the business, it will be easier to forecast the state of your business. You know how much your debt payments will cost you each month. You will also know when you will completely pay off your debts.
How to consolidate business debt
Now that you know that benefits of business debt consolidation, let us figure out your options to do it.
The truth is, the best option is a loan. Fortunately, it is easier for businesses to get loan approval. For big banks, there is a 26.9% approval rate for small business loans. The statistics go higher for smaller banks – with a 50.2% approval rate. If you need a business debt consolidation loan, there is a high chance that you will get approved for it.
Of course, getting approval for the loan is only the first step. Once you use it to pay off your current debts, do not think that you are already in the clear. You still have a lot of debts to pay off. You just shifted your debts so it is under one loan.
If you really want to get rid of business debt, here are some tips that you need to implement.
- Have a solid repayment plan for the debt consolidation loan.
- Make sure the debt is aligned with the budget of the business to ensure that it will always be funded.
- Limit credit spending unless it is really necessary.
- If employees are allowed to use credit cards, make sure there is a limit.
- Try to save for future expenses instead of borrowing money.
- Lower your overhead costs to keep spending low.
You have to remember that business debt consolidation is only effective if you can commit to your monthly payments. Do not think that you are already debt free. There is still a long way to go when it comes to your debt payments. Make sure that you give importance to your debt so you will not compromise your ability to get financial aid when your business needs one in the future.