As a business owner, you know that it takes capital to get the business off the ground and to ensure that the business continues to grow. Ideally, that money would come through sales, but there are times when you have to turn to loans. Those loans may be small business loans, credit cards, personal loans, or other methods of injecting capital. Paying all of those bills every month can be stressful, and missing a payment can severely damage your credit.
Whether you are overburdened with debt or you just need to simplify, business debt consolidation is always an option.
What is Business Debt Consolidation?
Debt can pile up from a number of different sources. Some of those loans can be high interest, others low interest, some shorter term and others longer. When you have multiple debts that you have to pay every month, it adds stress to your life.
Business debt consolidation is just as the name implies. You gather all of your debt under one loan, ideally lower your interest rate, and benefit from a simplified payment structure.
How Does Business Debt Consolidation Work?
There are two ways that you can consolidate your business debt: through a debt consolidation service or on your own.
Consolidating debt on your own can use up a lot of your valuable time. But in the long run, you will save more money. To consolidate, you have to find a small business lender that will grant you a loan large enough to pay off your other loans. You then only have one loan to repay.
The biggest problem with this method is that you generally have to secure the loan. That means putting up your personal assets as collateral. If your business goes under, or you continue to struggle financially, then your assets are at risk.
Using a debt consolidation company is simpler, but it tends to be more expensive. After you find a company that is highly rated and has a good track record, then they are responsible for negotiating with your creditors, finding the loan, paying off existing loans, and setting up the single repayment system. All of that takes work, and they generally charge a percentage for their services.
The biggest problem with using a consolidation service is that you might not be able to lower your monthly bill due to the fees. You might reduce the number of checks you write, but your payments remain the same.
Deciding if Business Debt Consolidation is Right
If you choose to consolidate, make sure that you do your research before any agreements are made. This goes for consolidating on your own and with a company. Keep in mind these key aspects.
- Origination Costs: Is there a one-time fee to consolidate?
- Length of Loans: Are you extending your debt out for many years?
- Interest Rates: A lower interest rate with a high origination cost will do you no good.
- Total Costs: Calculate how much your current loans will cost making minimum payments, and then calculate how much the new loans will cost. Determine which deal is better.
Consolidating Your Business Debt
Running a business has many perks, but it also comes with a significant amount of stress. You can reduce that stress by consolidating your loans. Just be sure to weigh the pros and the cons of all the options before making a decision. And be sure to do plenty of research on the consolidation company if you choose to use one. Many are great, but there are some bad apples out there, too.