Consolidate Business Debt

How To Consolidate Business Debt

If your business is at risk of bankruptcy or  due to unexpected cash flow problems, your ability to pay back existing small business debt has been affected, you may be able to benefit from entering into a program to consolidate business debt. 

What is debt consolidation?

The process to consolidate business debt involves combining several existing lines of credit and loans into a singular account at the lowest possible interest rate. Funds from a new loan is used for the purpose of paying off all other debts, so that the only remaining debt to be repaid is the new (consolidated) loan.

Is a business debt consolidation the right option for you?

If you are stressed out by calls received from numerous creditors, consolidation may be beneficial because as opposed to dealing with various accounts, you only have to be concerned about one. Furthermore, you may be eligible for a business debt consolidation loan at a lower interest rate permitting you to make more manageable payments each month with a large percentage of your payments going toward the principal (the original borrowing amount) as opposed to simply paying for the monthly interest accrued.

What are the drawbacks of business debt consolidation?

Similar to all business financing solutions, there are advantages and disadvantages to debt consolidation. As such, before you apply for a business debt consolidation it is critical that you understand your particular financial situation and ensure that you are getting a great deal. Financial advisors may be able to assist you to compare the details of new consolidation loan with your existing loan agreements. This requires, inter alia, a comparison of the interest rates, monthly payment amounts and any fees associated with the new loan. Ensure that you also consider the term of the loan because the length of the loan may impact the effective annual rate of interest.

At the end of the day, the goal of a business debt consolidation loan is to make your business debt situation more manageable by reducing the amount of creditors that you have to deal with, and also reducing the amount you pay daily or monthly, which will ultimately improve your overall cash flow. In the event that the new business debt consolidation loan agreement fails to achieve both these purposes, then it is likely that it isn’t a worthwhile solution for your  particular situation.

If you believe that a business debt consolidation loan may be the right option for your business’s present debt issues, there are a number of for profit debt consolidation companies to broker your new loan.

The responsibility of the consolidation company is to negotiate the new loan on your behalf, collect payments from your business and paying off your previous creditors. These companies act as intermediaries between you and your previous creditor, thus if you have instructed one of these companies to assist you, you should stop receiving regular calls from creditors soon.

Debt consolidation loans are available as secured or unsecured. The difference between the two is that with secured loans, the creditor will require you to provide collateral as security for the repayment of the loan, so  in the event of a default you run the risk of losing that collateral. On the other hand an unsecured loan, is a loan that you do not have to provide collateral for in order to obtain, whether or not you are granted an unsecured loan depends largely on your credit history and your ability to pay the loan back in monthly installments.