How to Consolidate Your Business Debt

How to Consolidate Your Business Debt
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One of the most important aspects of running a small business is managing your business’ finances. For many small business owners, this often means worry over debt.

Most small businesses take out some kind of small business loans or other small business funding to fuel their operations, but it can get out of hand if sales or revenue suffer a downturn. In these cases, it can be beneficial to utilize business debt consolidation.

A debt consolidation loan can allow you to bring together multiple debts into a single debt instrument, often for a lower interest rate and/or longer loan term, allowing you to better manage your cash flow and make your debt payments, even during business or economic downturns.

Learn more about business debt consolidation in our guide below.

What is Business Debt Consolidation?

Business debt consolidation is exactly what its name sounds like – it’s consolidating, or bringing together, various debts that your business may have. This is usually accomplished, in practice, by taking out a debt consolidation loan for the value of the outstanding debts.

This allows you to immediately pay off existing small business loans, lines of credit, and other business debts, leaving you with just the single debt consolidation loan to deal with.

What is Business Debt Consolidation

This is functionally different than debt settlement, which is a separate service and not typically offered by lenders. Debt settlement involves paying off existing debts for less than they are owed, often with a hit to your credit rating and other negative consequences. 

By contrast, business debt consolidation has only positive effects on your credit, and your existing debts are immediately paid off in full, while the new debt consolidation loan for the same dollar amount is created.

Small business funding companies, typically non-bank lenders, offer business debt consolidation loans. As a form of debt help for small business, they can be very valuable.

Because you’re not settling the debt for less than it’s worth, the process is usually quite smooth with existing debt holders. Both secured (collateral required) and unsecured (no collateral required) debt consolidation loans are available on the market. 

Many non-bank alternative private lenders offer debt consolidation loans for poor credit customers, too.

The Benefits of Business Debt Consolidation

There are many benefits that small businesses (and really businesses of any size) can realize from the business debt consolidation process. Almost all of these involve saving money or saving time and effort, or both, for the business and business management.

The Benefits of Business Debt Consolidation

Specifically, some of the key benefits of business debt consolidation include:

  • Reduction of service fees and costs associated with debt service by removing debts from multiple, disparate lenders and companies, and bringing them all into a single debt consolidation loan instrument at a single institution.
  • Savings in terms of lower interest rates which are often available, especially if you consolidate higher-interest debt for a lower-interest debt consolidation loan, which is often possible depending on prevailing market interest rates, age of debt, and other factors.
  • Restructuring of debt over a longer period of time, which might mean more interest payments, but lower monthly or weekly payments.

    This kind of business debt consolidation loan adjustment can effectively save businesses a lot of money in the short-term, preserving vital capital, especially during business downturns.
  • Savings in time and hassle, as you only need to deal with a single debt consolidation loan when you complete the business debt consolidation process, and a single loan servicer/lender, rather than many companies with different payment schedules, terms, and so on.

    As everyone knows, time is money, and saving time and hassle can be huge for small businesses.
  • This debt consolidation can also make it easier to deal with your debts from a psychological and emotional standpoint. You no longer will be receiving multiple calls, mailings, and similar from multiple creditors looking to get paid.

    If you’re behind on your debts, business debt consolidation can resolve all of those stressors, and make your debt load more manageable.

The Potential Downsides of Debt Consolidation

Of course, as with any decision, business debt consolidation can have some potential downsides or negatives as well. 

Like anything in business finance and small business funding, you need to be sure you understand all the details and run the numbers, so that you’ll know your business debt consolidation loan will result in meaningful savings.

The Potential Downsides of Debt Consolidation

As mentioned above, this can be tangible – cash savings and lower payments – or more intangible – reduced stress and hassle to pay off multiple creditors. 

So what can go wrong?  What are the potential downsides of this debt consolidation process?Generally, you can run into a few problems with the debt consolidation process. 

Most often, some existing creditors may have loan terms that charge a penalty or service fee for early repayment. This can be substantial depending on your lender(s) and the kinds of loans you have. 

Fortunately, this can be avoided, simply by reviewing your loan agreements on all your existing debts and ensuring that you can pay them off in a single, lump-sum repayment with your debt consolidation loan proceeds.

Another potential downside is ending up paying more in the long-term on your debts. If you use a debt consolidation loan to extend the term of repayment on your debts, you will naturally pay more in interest. 

Even with a lower interest rate, this can end up being a “break even” proposition, or even end up negative, where you pay more than you would have on your existing debts.

The tradeoff is extending the term of your debt with business debt consolidation can substantially lower your monthly payments and preserve capital in your account.

For many business owners, that immediate benefit, and how large a role it plays in keeping the business afloat during tough times, outweighs any longer-term increase in interest payments.

The best advice when considering business debt consolidation is to be sure you do your research, run all the numbers and scenarios, and know the potential best-case and worst-case outcomes. 

Then, like with every other aspect of running a small business, you can make your best, informed decision as to what is best for your business when it comes to the business debt consolidation process.

Business Debt Consolidation Services from BizFly Funding

BizFly Funding offers business debt consolidation loans for small businesses, along with a full range of other loan and credit products. As a leader in small business funding, BizFly Funding works exclusively with businesses to provide the capital they need to succeed.

Based in and serving the US market, BizFly Funding is a non-bank, private, alternative lender, allowing them to offer small business funding and debt consolidation to a much wider range of clients than banks and traditional institutional lenders.

You can get pre-approved online in 30 minutes or less for the various small business funding services available from BizFly Funding.

To find out more about all the benefits of choosing BizFly Funding, visit their website and fill out the online application at http://bizflyfunding.com.

Frequently Asked Questions about Business Debt Consolidation

A business debt consolidation loan of sufficient size can handle all your existing debts, allowing you to pay them off with the loan proceeds. 

While the new debt consolidation loan will still be, effectively, for the same amount of principal, you will now be able to realize the benefits of a single loan from a single servicer, often at a lower interest rate or longer term, thus reducing your weekly, biweekly, or monthly payments and allowing you more financial flexibility in handling your business needs.

Business debt consolidation will not hurt your credit. In fact, it will likely improve your credit, as, though the total outstanding loan amounts won’t change, you’ll pay off any existing debts, and address any existing delinquencies in the process. 

Worst case, you’ll see no improvement in your credit score. Best case, business debt consolidation can help improve your credit score.

Because of all the potential benefits from business debt consolidation, it’s generally seen as a smart money move for businesses that have substantial debts. 

As with anything, though, the devil is in the details, and you should be sure that you will realize tangible and/or intangible savings and benefits from your particular debt consolidation loan and the debt consolidation process prior to signing a loan agreement.

Absolutely! If credit card debt is part of what you pay off with your debt consolidation loan, you can continue using the credit cards as you see fit.

Ideally, you don’t want to ring up a bunch of new debt if you can avoid it. But business operational expenses and other uses for business credit cards will certainly still occur, and can be charged to your credit card as normal.

You’ll simply be paying less interest on any new balances, since you won’t be carrying around the weight of your existing balance on those cards.

We’re certainly not impartial in the matter, but we recommend ourselves – BizFly Funding. 

See below to learn more about all of the small business funding, debt help for small business, and other business-oriented financial services available from BizFly Funding.

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