Are you struggling to manage multiple business debts? Maybe you are dealing with supplier debts, credit card debts, taxes, pending line of credit repayments, bank loans among other debts? As a business owner, you appreciate how frustrating managing multiple loans can be. This can gradually ruin your business as your focus will be on handling loan repayments.
In fact,in a study published in the Financial Web, business owners surveyed agreed that spiraling debt is the greatest challenge they face. In most cases, they cannot access more financing from traditional lenders to offset cash flow issues as they are categorized as high-risk customers.
This leads to more financial issues and eventual collapse. A study by the U.S. Small Business Administration (SBA) shows that the average small business loan in 2015 was $371,276, which highlights the bludgeoning debt for SMEs.
The Pros of Consolidating Business Debt
This is where debt consolidation comes in handy. There are many private lenders providing loan consolidation services to businesses. By consolidating all your debts into one larger loan, you enjoy peace of mind as lenders will not be constantly contacting you.
More importantly, you are able to ease cash flow problems to enhance efficiency in your business operations. When you consistently repay your debt, this information is reported to credit bureaus which in turn review your credit score. This makes it possible to access more affordable funding in future.
Steps to Follow in Loan Consolidation
There are many lenders providing these loans but where do you start? Of course it is easy to just go online and identify a lender but such haste is fraught with risks. Below is a comprehensive guide to help you find the best consolidation loan for your business:
- Evaluate your business needs: Every business has its own unique financial needs. For instance, you might be struggling with unsecured debts while another business is grappling with credit card debt. As such, always take time to assess what type of financing arrangement best suits your needs.
- Understand how loan consolidation works: It is important to note that loan consolidation is not a magic wand to wipe off your debts. It is just a strategy to help you control your increasing debt before it ruins your business. Any loan you have bought must be repaid and as such, consolidation will only work if you are ready to adopt a more disciplined approach to financial management.
- Consider whether loan consolidation is right for you: If you are overwhelmed by calls from creditors and collection agencies, it is time to consider consolidating your debts. If you are struggling with cash flow issues due to loan repayments, loan consolidation is a great strategy to increase available cash and boost operational efficiency.
- Identify the right lender: There are many loan consolidation companies and you have to start by assessing their reliability, interest rates, flexibility in repayments, licensing, BBB rating, customer reviews and level of customer service.
- Draw a new financial plan: Once you consolidate your debts, make sure you come up with a new strategy to ensure you don’t fall back on the new repayments. This boosts your credit rating and improves business performance.
Stacy Hecht is a financial advisor specializing in small businesses. He has worked in the financial sector for 24 years. This is one of the articles in a series of blogs evaluating debt consolidation for small businesses.