Pros and Cons of Business Debt Consolidation

Running a business in the modern environment is not for the fainthearted. There are so many changes happening today mostly affecting small businesses. These changes include changing customer expectations, increased competition due to a globalized market, disruptive technology and increasing operational costs. According to a 2014 Fortune Report 90% of startups are in danger of failure, which is a worrying situation.

Read: Wooing the Millennials with Updated Mortgage Technology

One of the main reasons why these businesses are collapsing is of course due to cash flow problems. In fact, a U.S Bank Study has revealed that 82% of these businesses collapse because they cannot sustain operations due to cash flow problems. A study aired on CNBC lists financial problems as the main cause of small business failure. In most cases, the debt burden becomes too heavy to manage and investors are left with no option but to fold up.

But should this be the case? Considering that small businesses account for 99.7% of all U.S business, there should be a solution to solving the cash flow issues. Of course most businesses have now resorted to loans to offset cash shortfalls.

Find: Ways To Start A Business While Being In Debt

This means these enterprises have multiple debts to deal with, which can prove to be tricky. Most small businesses which have collapsed or declared bankruptcy have been dragged down by unmanageable debt. Not only can debts ruin your investment, the persisting bad credit profile will alsohinder any chances of getting affordable credit from the market.

In essence, dealing with multiple loans will very effectively allow your business to stay afloat and attain a healthier financial status.

Debt Consolidation as a Godsend

If you are struggling to keep your business afloat due to spiraling debt, it is time to consider loan consolidation. Business debt consolidation has been cited regularly as an innovative way to get a business out of the debt abyss and give it a chance to get back on its feet.

To appreciate how your company can benefit from this approach, it is important to get more insight on business consolidation loans.

Find: How Can Entrepreneurs Take Business to Height Without Falling in Debt

Advantages of Business Debt Consolidation

While there are numerous programs and financial models that are designed to deal with business debt, there is no denying that most of them don’t work. However, debt consolidation has been around for decades and it has now been formalized to become one of the most important financial products in the market.

Below are some of the pros of consolidating your business debts:

  1. Lower interest rate – One of the most common complaints business owners make about their debts is the high interest charge. A high percentage of the repayments goes towards the interest charges and it can be a frustrating cycle, causing you to be in debt for years. However, consolidating your loans effectively lowers the interest fees.
  2. Peace of mind –Nothing is as frustrating to a business owner as having to deal with multiple calls from different creditors or collectors. You will gradually lose focus on your core business as you try seeking the easiest way to repay your debts. Loan consolidation gives you peace of mind which allows you to focus more on your business as opposed to dealing with multiple creditors.
  3. Single payment – Once you consolidate your loans, you will only have one payment to deal with. This means you can easily manage your cash flow and budget more efficiently. Most business owners concur that multiple debts will ultimately lead to defaulting, which will have adverse effects on the business.
  4. Credit score repair –Your credit profile stands to benefit through debt consolidation. Once you get a new consolidated loan, it is easier to make repayments on time and this information ends up with credit bureaus. As time moves on and you continue repaying your loan, your credit score improves to a point where you can access more affordable financing from your bank.
  5. Better cash flow –To overcome one of the greatest pitfalls for small businesses, it is important to consolidate your loans. This will leave you with more cash to finance day-to-day operations.

With debt consolidation, there are no negotiations or underhand deals to help your business to deal with the debt problem. Instead, you will identify a licensed debt consolidation company to give you a new loan to repay all the pending bills.

Once this is done, you will then start making a single payment to the loan company. It is important to be cautious about loan companies that promise loan consolidation services only to sign you up for debt settlement and other underhand relief programs. Online consolidating companies now offer easier access to these services and you can compare their interest rates on different websites.

Drawbacks of Business Debt Consolidation

While debt consolidation is a great alternative to handling your business debt, it is important to closely examine its full implications.

Read: How To Choose The Most Qualified Attorney For Your Upcoming Case

Below are some facts you should consider when applying for a debt consolidation loan for your business:

  1. Debt consolidation does not wipe away your debt – Always remember that there is no solution to your debt other than repaying it. As such, consider debt consolidation as a way to help you fully settle your debts and not as a magic solution. If you don’t observe financial discipline, you will find yourself with multiple debts in no time.
  2. Extended payments –Most business owners take out short-term loans in order to qualify for more funding once they have serviced the earlier loans. Once you consolidate all these short loans, you will now have a longer-term loan which means extended repayments. Always sit down with your loan assistant and consider the loan repayment implications in terms of the entire amount to be repaid at the end of the new loan term.

Conclusion :

Small business debt consolidation is an invaluable financial strategy. You will not only get much needed reprieve from collectors’ calls but also enjoy lower interest charges. To take full advantage of debt consolidation loans, choose a reputable lender who will provide a flexible repayment schedule based on your finances. A good loan consolidation company should also provide tips on how best to manage your finances to avoid going back to your current financial mess.