How Debt Consolidation Loans Can Help Businesses Get Out of Multiple Debts?

More often than not, a business needs loans to sustain and flourish. Entrepreneurs plan a business and parallelly plan the finances, the backup, and do all on the basis of several financing options like business credit cards, business loans, and investors who would provide the funding for different projects. Now you would be lucky if things roll out smoothly, and your business generates enough income for you to pay the loan EMIs every month as well as earn a substantial profit for your sustenance and growth. But it’s business, and anything at can go wrong anytime.

What if things go wrong and you don’t earn enough from the business?

Debt consolidation is the process of combining all existing business debts, loans, and lines of credits into one single loan account. This removes the hassle of handling multiple loan accounts, and you can say good bye to the stress of dealing with several lenders. You will need to keep track of just one account and work with a single lender. Another really big advantage of debt consolidation is that you can get a lower rate of interest for stacking all the loans into one account.

What is debt consolidation?

The problem with multiple creditors

The most common problem you get when you have debts spread in multiple places is that you have to worry about the loan repayment to not just one institution or creditor, but to multiple. This is a big headache, and brings in too much of tension and responsibility. If you become a defaulter, you would be sued by the creditors and you would be in a total mess.

However, when the debt is consolidated into one single loan, you are relieved from attending calls from multiple creditors, and you can concentrate on only one account. You can rest assured knowing that at the end of the month, you will be paying whatever you can, to only one creditor and that too at a lower rate of interest than you are paying now to the many creditors.

But what’s the catch?

Well, it’s a plain business decision that involves the proper handling of finances to avoid future troubles. And your lender will also be doing business with you. Therefore, there is apparently no catch. But there are a few things to calculate before you go for the decision. If you have to consolidate your debts, you must think of all the pros and cons. Do you know your financial situation? You must make a file of exactly how much you owe, how many lenders you have now, how much money you are to pay every month, and then compare the figures to the new proposed loan, where you will be paying only one amount. Will it be any lower? Will the interest rates be low enough to make you pay an amount lower than the current collective amount? And will the loan tenure be comfortable for you to handle? You must also find out the extra necessary fees and charges associate with the shift.

If, after comparing and calculating things, you find out that this is a profitable deal which will help you handle your finances better, you should go for it. However, it’s always good to get the maths checked by a reliable financial advisor before you proceed.

How to take the initiative to business loan consolidation?

When after all calculations you have decided that you want to go for a debt consolidation loan, you must find a debt consolidation company near you that would help you get such a loan. Their job is to connect you to the consolidation process, initiate the deal, wherein your current creditors are all handled by the mediator via the new lender. This is a process which once initiated will stop all creditor calls to you, and you will only be getting further calls, queries and correspondences from the new lender who consolidated your debts. All prepayment penalties and negotiations with current creditors will be handled by the consolidating company. And once the new loan is approved, your old creditors will be paid their dues, and you will only be paying interests to this new company.

All prepayment penalties and negotiations with current creditors will be handled by the consolidating company. And once the new loan is approved, your old creditors will be paid their dues, and you will only be paying interests to this new company.

Factors affecting loan interest rates

The debt consolidation loans are offered in two forms. One is the secured loan, and another is the unsecured loan. The secured loan is given when you show a collateral or asset like your home, factory, car, etc. This is mortgaged before the company so that this new loan is issued, and you get a lower interest rate than the unsecured loan where no collateral is required.

However, you must consider that if your business gets into more trouble, and you fail to pay the interests for this new consolidated loan too, than your collateral as well as the business would be at stake.

Finally

Whatever you decide, you should take the advice of a good financial consultant first. He/she knows all the loopholes and pitfalls in the lane of obtaining a consolidated loan. It has been observed that many businesses have managed to come out of dire financial crisis through consolidating their debts. That is when the business owners could concentrate more on the business instead of worrying about paying multiple creditors.

Author Bio: Isabella Rossellini is in the segment of business consulting and advising finances for businesses, and has seen many businesses through ups and down in her career. Her resources and articles on debt consolidation loan and debt handling are highly helpful for business planners and owners.