If your business debts are starting to overwhelm you, you might want to consider taking out a business debt consolidation loan. Countless companies across the country have been able to pay off their debts by combining them into one loan – but is consolidating right for you?
What is small business loan consolidation?
If you’re a small business who wants to keep their debts on track, but are finding it more and more difficult to manage and make payments, these kinds of loans will often be a great help.
Generally, they give owners the chance to pay off their small business loans with the proceeds of one big debt; the consolidation loan. Often, there are several advantages that can come with combining your current debts, which is why you might want to consider doing just that.
How can consolidating your debts help?
You may be wondering why a small business consolidation loan could be so beneficial, especially if you’re looking for a solution to your current debt-related predicament. Some of the main advantages that can come with rolling all of your debts into one can include:
Reduced interest rates
Consolidation loans tend to come with low interest rates (especially for those with a high credit score), which can make them an even better option for those who are struggling with high-interest debts. And, with a lower interest rate, your monthly payments will often be smaller, too.
Making your payments more manageable
As well as paying less on your new loan, consolidating can often help to make your life much easier when it comes to managing your debts, too. Instead of having a number of different payments to make, which can often be quite overwhelming and difficult to keep on top of, you’ll generally only have one debt to deal with.
Benefits of small business consolidation
There are often a number of advantages that are exclusive to small business consolidation loans. Typically, they offer terms that may be more ideal for you, like lower rates and less frequent payments.
Things to keep in mind
Before you get a loan to combine all your debts, it might be a good idea to take the time to find out more about consolidating and if it’s the right option for you.
For example, the main purpose of doing this is to make it easier to manage your payments by reducing the amount of lenders that you have to deal with, from multiple to one. While getting a lower interest rate is often a great bonus, you may not always get a better rate.
Generally, it’s best to be a smart borrower and to pick a reliable lender – and it’s often a wise idea to do your research and do of all your own calculations too (and check them).
How to consolidate your business debts
If you’ve decided that a consolidation loan is the right move for your business, you might want to follow these steps when applying for a loan to ensure that you make the most of it.
- Take a look at your current loans (it’s often best to check the outstanding amount, the interest, the payment schedule, the lender, and the maturity date)
- Beware of prepayment penalties – paying off small loans before their maturity date could cost you
- Next, add up all of your debt and (separately) any prepayment penalties
- Calculate the annual percentage rate (commonly abbreviated to APR, which is the total sum of a loan, all fees included) of your current loans
- Start shopping for a debt consolidation loan, whether you look online or visit your local bank
- Compare the combined APR of your current debts and the estimated APR of the consolidated loans. Sign your new loan agreements and use the capital to pay off your current debts (typically, you won’t even see this cash before it’s used to pay your lenders)
- Keep up your payments on your debt consolidation loan