Unless you or your co-owners are independently wealthy, some business financing is necessary in order to fund your growth and associated business activities.
Successfully managing and paying down that debt with the proceeds from your business can often make the difference between the success or failure of that business.
In fact, something on the order of 40% of small business owners whose businesses have failed cite debt or the inability to access funding as the root cause. When debt piles up, however, it can become crippling, acting like a noose around your business’ proverbial neck.
It can make it virtually impossible to obtain additional funding, pay your bills, your employees, or suppliers, grinding your business to a halt and sending you into bankruptcy in short order.
Effectively managing your business debt can be made easier by taking out a business consolidation loan and putting it to work for you. We’ll tell you all about these loans, and offer business debt advice to help you plan for small business debt consolidation in the article below.
The Basics of Business Debt Consolidation Loans
First, let’s start with the basics of what business debt consolidation is, and how a business debt consolidation loan works. In essence, it’s all there in the name – it’s a loan that you can use to consolidate the debt that your business holds.
You take out a small business debt consolidation loan, and get a lump sum of cash as the proceeds from the loan. This cash is then used to pay off multiple creditors, thus consolidating your debt to only the business debt consolidation loan.
In practice, you may not be able to pay off all your debts in this way, but you can definitely pay off several – the most expensive based on interest rate – and realize significant savings on your debt service costs, as well as in other ways, which we’ll address in the next section.
Of course, you still need to repay the business consolidation loan, so your debt is not actually decreased directly with one of these loans.
That kind of debt help is more the domain of small business debt restructuring or settlement companies, which often help you settle your debt with creditors for less than the face value.
That particular course of action has significant adverse credit score impacts, and is not to be entered into lightly. On the flipside, business debt consolidation loans don’t present any negative credit implications, and can even help improve your credit score in short order.
How Business Debt Consolidation Loans Save You Money
When considering debt consolidation for business owners, it often comes down to the bottom line: how can a business consolidation loan save me money?
This is a fair question, with several answers, because small business debt consolidation loans can save you money (as well as time and stress) in several ways:
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By paying off high-interest debt first, often well before the term(s) of these loans or credit products would otherwise be complete, you can save on the interest payments.
While you still need to pay interest on the business consolidation loan, rates are typically much lower than many of the high-interest credit card and other small business financing options you may currently have.
This can be especially true if those debts were taken out earlier in your business’ existence, and your credit score, revenue, and similar have all improved significantly since that time.
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Debt consolidation often allows you to reduce the number of loan servicers with whom you have to deal with. If you are able to consolidate all of your debt, then you’ve cut potentially several servicers down to just one.
Many debt servicers charge a myriad of fees and surcharges, even if you pay on time each period, and these can be reduced or eliminated entirely with most small business debt consolidation loan companies.
Even $25 in fees at 4 servicers adds up, saving you $1,200 per year just by using a business debt consolidation loan.
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Depending on the date(s) of payment required on your existing debts, you can often streamline them into a single payment with a business debt consolidation loan. This can simplify cash flow and debt management, allowing you to better deploy your capital and revenue.
It can also save you a lot of stress, headaches, and time spent managing your debts, which can translate into additional productivity and allow you to focus on running your business rather than running your books (or, if you outsource your accounting, meaning less billable hours for your bookkeeper, saving you on those expenses).
Planning for Small Business Debt Consolidation: Step-by-Step Guide
In order to make the most of a small business debt consolidation loan, you need to do some planning and preparation so that you can best deploy the loan for maximum effect.
Our step-by-step guide below will walk you through the basics of preparing and planning to use your business debt consolidation loan.
Like many things in business and life in general, putting in a little time and effort up front can make all the difference in how much you save and how beneficial a small business debt consolidation loan can be for your business’ financial health.
- 1 - Gather Your Documents
First, you’ll want to gather all your documents – physical or electronic – relating to all of your current debts. This includes loan agreements, recent statements, and any terms or conditions associated with the loans or credit products.
- 2 - Review Your Debt and Interest Terms
Next, before you even consider applying for a business debt consolidation loan, you should review all of the documents gathered in step #1 above.
You may want to create a spreadsheet or take down some notes in a notebook or other fashion. Specifically, you want to look at outstanding balances on the debts, interest rates, and related terms.
- 3 - Check on Servicer Fees and Payment Terms
In addition to the information highlighted in step #2 above, you’ll want to capture the servicer associated with each loan or credit product, and research any fees that they charge you on an ongoing basis.
This will help with step #4 below. Capture the payment schedule and frequency for each debt instrument as well.
Additionally, you’ll want to note any particular payment terms, including any penalties that may be associated with early repayment (it may seem counter-intuitive, but some lenders do charge a penalty for repaying loans early).
- 4 - Prioritize Debt for Consolidation
After you’ve gathered and analyzed all the relevant information, it’s time to prioritize the debt for consolidation. Essentially, this step is where you decide what debt(s) you want to pay off with the proceeds from your small business debt consolidation loan.
You should start with the debts with the highest interest rate, and/or high interest rates and high service fees, then work downward in decreasing order. Be sure to calculate any difference in potential savings vs. penalties if your debts have an early repayment penalty.
Alternatively, you may want to make some adjustments to that order if you have multiple smaller debts with a single servicer that charges high fees, so you can close out your accounts with them entirely.
The goal of the prioritization process is to find the debt items that will provide you the largest financial benefit by paying them off first.
- 5 - Apply for Your Business Consolidation Loan
After you’ve completed steps #1-4 above, you’re ready to apply for a business debt consolidation loan with your chosen lender.
Most won’t necessarily require the information you’ve gathered, but it’s critical for you once you are approved for and receive your small business debt consolidation loan.
It helps provide you with clarity and direction, and gives you documentation in case it is requested by your lender, with a clear plan as to how you intend to use the loan.
Small Business Debt Consolidation Loans from BizFly Funding
If you’re interested in small business debt consolidation loans, one of the best sources for US small businesses is BizFly Funding.
With generous loan amounts and easily met requirements of eligibility, BizFly Funding is a reliable source of affordable business debt consolidation loans.
What’s more, BizFly Funding exclusively deals with providing small businesses with the financing options they need to succeed.
This specialty translates into better and more expert service for small business owners when choosing BizFly Funding as their lender. To learn more or start the application process, visit https://bizflyfunding.com.
Frequently Asked Questions about Small Business Debt Consolidation Loans
Paying off debt generally requires the revenue and profits from your business activities.
While traditional business debt advice might be to avoid debt in the first place, that’s generally not possible for most small business owners.
Utilizing small business debt consolidation loans can help you to pay off your business debt, and save money in doing it, resulting in a net benefit to your business.
Debt consolidation for business owners won’t immediately improve the business credit score, as the total outstanding debt will remain the same.
However, closing multiple debt accounts with a range of servicers should translate into some score improvement in the short term.
In the long term, the savings from your business debt consolidation loan will allow you to pay down your debt faster, which will also help improve your credit score.
Every lender has different requirements to qualify for a business debt consolidation loan.
Most small business owners will find business consolidation loans most accessible from non-bank private lenders, who usually have lower overall credit score, time in business, and monthly revenue requirements than traditional financial institutions.
As mentioned above, every lender will have different requirements or qualifications in order to obtain a business debt consolidation loan.
In general, credit scores may not be the deciding factor for most lenders who offer debt consolidation loans.
Far more important in most cases is your revenue and time in business, as these are better indicators of your ability to generate the money needed to make your repayments on time.
You should never mix your personal and business finances. Therefore, a personal loan is not well-suited to pay off business debt.
Rather, your business should apply for a business debt consolidation loan.
This helps limit your personal liability, and won’t violate GAAP financial measures in the way that dipping into your personal finances would.
