How Business Debt Consolidation Loans Help Startups?
Start-ups draw their power from the few pioneers ideate, run and find financing for the business processes. Up until a couple of years ago, start-ups always began as small endeavors, usually out of someone’s garage or bedroom. They gradually grew in size, and more investors began to take notice of the entrepreneurship as it became more prominent. Right now, the market is saturated with budding businesses from all over the world, and start-ups need a little more than their usual bit of starting funds for a quick perk-up.
As a result, some start-ups are taking up small loans from time to time to fund their different business operations and fuel new projects. After a brief period of accelerated growth, the few think-tanks who are running these start-ups are becoming tired of keeping track of so many payments. However, the sheer numbers of an already existing number of debts are keeping them from scaling up or hiring more employees to manage their finances. This might seem like a deadlock until you consider the possibility of debt consolidation loans.
How to fool-proof your business debt consolidation process?
Although getting a debt consolidation loan has become a lot easier for all start-ups thanks to the advancement of technology, it is not as easy as clicking a button and ordering a new pair of headphones! It still involves an application process, some evaluation and cross-checking and approval processes before you can get your hands on the capital.
Here are the five things your lending company will check before approving your application for a debt consolidation loan –
Your credit record and credit score
Your FICO score will determine who you are in front of your potential lender. If you have been paying your loan installments on time and you are not behind on any bill payment, your credit score should be healthy. A credit score above 650 is usually good for a borrower. A good FICO score can bring you better loan offers instantly. All lending parties feel more secure lending money to parties who have more instances of paying their creditors in full in the recent past.
Start-up’s business credit profile
Business credit is just as important as your credit when applying for a business debt consolidation loan. To build business credit, you will need an LLC, federal employer identification number, dedicated business accounts and register your business name with the reputable business directories. A good business credit profile includes the following –
- A great payment history
- No reporting mistakes (from more than one lenders and companies)
- Absence of tax liens
- No repossessions or bankruptcies in the past
A good run
Your business may have been ringing in magnificent numbers, but the lenders will be skeptical if your business is just about six months old. Recent reports show that over 70% of the start-ups in the USA fail in the first five years of operation. Therefore, the longer your start-up has survived in this competitive market, the better is the security for the lender. A business that shows amazingly steady cash flow over the last few years has more security to offer to the lenders. Depending on your business credit profile and your credit score, you are likely to get up to $35,000 or more at amicable interest rates and APRs.
What’s your annual turnaround?
Your yearly turnaround should be impressive. Only a company that actively identifies its problems considers the customer/vendor feedbacks and implements new problem-solving strategies can contribute to a positive turnaround experience. You should be able to show a real and positive annual turnaround to your lenders to qualify for a first-grade business debt consolidation loan at the best terms. Since turnarounds are rarely ever spontaneous, they signify a high level of understanding of the management policies, existing problems and the presence of resources to troubleshoot these problems. A significant increase in sales and revenue are signifiers of trustworthiness. Companies with a good yearly turnaround are often are the receiving end of better loan offers.
A trend of improving business finances
Most start-ups do not realize that there is a right time for approaching lenders for loans. There are several stages of raising equity, and when you approach the likely companies for a loan during these periods, your chances of approval are magnified manifold –
- After filing all taxes
- Immediately after finishing a busy (successful) season
- Increasing revenue trend for the last three months at minimum
- A great business year with lowered revenues and high-profit levels
Is debt consolidation your only option?
No matter how bad your debt situation seems right now, you can always turn things around by approaching a professional debt counselor. Debt counseling is a must for all individuals and start-ups looking for a way out of their dreadful debt debacle. Sometimes, all you need is a minute adjustment of the payments to pay off all your creditors before term and without attracting any penalties. Commercial debt counseling will help you understand the importance of each debt in the life of your start-up.
Simple categorization of debt is all you need to be able to meet all payment deadlines. The ideal process is to consolidate all the high-interest loans and the lines of credit with sharper deadlines. This will reduce the burden of interests on your capital payment. You will enjoy better payment terms including lowered interest rates, an extended period of payment and improve your credit scores within a couple of months.
Business debt consolidation can save a start-up from an untimely goodbye, but you must always remember that a consolidation loan is not a solution. It is only the means of delaying a payment term. Each consolidation loan also comes with its repayment terms and period. Typically, they come with 3 to 6 year repayment periods, depending upon the borrower’s business profile. Therefore, unless you have a plan to resuscitate your business, there is no way to fuel your business on borrowed capital.