How to Consolidate Business Debt:
Many entrepreneurs want to start their own businesses, but before they are able to do that, they will have accumulated more debt than their business’s cash flow can afford to pay off. One option for businesses that have taken out more loans than they can pay back is debt consolidation.
Your business might benefit from debt consolidation which is great, but make sure you are choosing the right consolidation plan to meet your needs. Be sure to understand that some programs require your business to meet minimum requirements in order to qualify for their debt consolidation programs.
The following are some common programs for debt consolidation and the requirements your business meet:
Traditional Bank Loans: they have the strictest requirements when it comes to qualifying for loans – these loans are best for those highly qualified borrowers who want to receive the lowest and most convenient terms.
SBA 7(a) Loans: these are probably the 2nd best choice after bank loans in terms of conditions.
Funding Circle: an online loaning company that provides fast funding, long terms, and has no minimum revenue requirements that they will place on the company before making them a loan.
OnDeck: allows businesses to get loans if they have been in business for a minimum of one year.
Depending on your qualifications or needs, these are some of the options that you may have for debt consolidation for your business. Some businesses will qualify for more “ideal” loans than others based on their qualifications.
How Does Debt Consolidation Work?
Debt consolidation helps you take a bunch of payments that your business is struggling to make or simply can’t make and put it all into one monthly payment. These payments are more manageable and affordable to your business as you pay the debt off over a longer period o time. The longer of a term your debt consolidation plan is, the lower your monthly payment will be.
Steps to Consolidate Your Business Debt:
There are several steps that you need to take a look at your loans and see what you owe:
Step #1: Review and look back at the loans that you have and the interest and details for each. Understanding what you owe is the first step to paying them off in a sensible way.
Step #2: If you have smaller loans, you want to use a debt repayment plan that will be able to pay the loan off before it would fully mature. The sooner you are able to pay off a loan, the less interest you pay and you save money in the long-term. Make sure that there are no prepayment penalties on your consolidation plan before you pay off your loans so that you don’t waste money on fees.
Step #3: Determine your business’s debt and determine what your average APR will be. You want a consolidation plan with a lower interest rate than your biggest loans have now. That helps you save more money on interest and pay more to the principal of the loan.
Step #4: Start with the top options when considering how to consolidate your business debt and move down the list to less favorable options. You want a deal that works out the best for you.
Step #5: Once you consider the above, decide if debt consolidation is the right option for you. Ideally, you will be paying lower interest rates than you were on your previous loans. Consider terms of payment and length of the contract as well when making your deal.
Step #6: Once you set up a plan that you plan to keep, then start making payments as you move to be debt-free.
Consolidating your debt helps you pay it off more quickly and easily. As you get to be debt-free, then you can expand your business further as you will have more free cash flow to work with.
For more information on which debt consolidation plans can work for you, please feel free to contact us! We are always here and happy to help!