Lack of access to capital is a big one, but so is mismanagement of debt, or taking on too much debt. Properly dealing with debt is always a challenge, but it can be made easier through debt consolidation and debt refinancing.
One easy way to accomplish this is by taking out a small business debt consolidation loan from a lender. It may seem counter-intuitive, to take out more debt to deal with existing debt, but it can be extremely beneficial, as we’ll explain below.
What is Small Business Debt Consolidation?
Let’s start with the basic question that anyone new to debt consolidation might be asking.
What is small business debt consolidation?
Whether the small business variety or any other kind of debt consolidation, it’s a process of paying off several debts, usually from different servicers and with different interest rates, by taking out a single, larger loan.
In effect, since the varied debts from different servicers are paid off by the new debt consolidation loan, the amount of your outstanding debt doesn’t change. But the debts are consolidated into a single loan, making it easier to manage.
For small businesses, small business debt consolidation can offer many benefits. One prime example is moving from multiple to a single servicer on your debts.
Having a single servicer and single loan to deal with can save you significant time, money, and hassle in your monthly accounting and bill paying routine.
There’s no question that having a single monthly payment only, and a single point of contact for that payment and loan, is advantageous. It can also save you money, as many processes charge various monthly fees on their business loans and lines of credit.
Imagine, even if you only pay $75 a month in fees, and can eliminate those with a small business debt consolidation loan, what you might do with the resulting $900 a year in your pocket.
But by far, the biggest boon from consolidating small business debt comes from lower interest rates.
While not, strictly speaking, a requirement of debt consolidation (see the next section for more information), if you have a lot of higher-interest loans and debts, you can usually get a small business debt consolidation loan at a lower overall rate than your current debt mix.
This means you’ll pay less in interest on the debt – even the same amount of debt – than you would if you hadn’t consolidated.
That can add up to thousands or tens of thousands of dollars depending on the amount of debt your business has, and the interest rates on those debt instruments.
Are Debt Consolidation and Debt Refinancing the Same Thing?
The process we just described above is more characteristic of debt refinancing than debt consolidation in and of itself. However, it is something that most businesses can achieve with debt consolidation.
In debt refinancing, there’s not necessarily any kind of consolidation of multiple debts into a single loan or debt instrument.
Rather, it’s a process of negotiating and renegotiating terms of a loan or debt product with the issuer, usually with an eye toward a lower interest rate or longer loan repayment term. But both processes can be achieved at the same time, and there is a lot of overlap.
In addition to debt refinancing and debt consolidation, there are also debt settlement agencies, that can help you directly settle with creditors for less than they are owed.
For businesses that are otherwise financially successful and not planning on closing or declaring bankruptcy, debt settlement is really a last resort option – it can make it very difficult to secure funding in the future.
On the other hand, small business debt consolidation is a perfectly normal process to undertake in the ordinary course of business. It won’t lower your business credit score or signal any failure to your creditors. It just makes your life easier, and saves you some money, which is a win-win.
What’s the Difference between Secured and Unsecured Debt Consolidation?
One important aspect of small business debt consolidation to keep in mind is the difference between secured and unsecured debt consolidation loans. Like any loan or credit product, secured debt consolidation means something that is backed by an asset as collateral.
Small business debt consolidation loans that are secured will require you to put up equipment, property, vehicles, or other assets – or perhaps a general lien on the business – in order to qualify.
This usually provides lower overall interest rates, since there’s less risk to the lender. But there’s a much greater risk to the business owner. That’s why many prefer unsecured loans for consolidating small business debt – loans that have no collateral requirements.
The rates may be a bit higher, but all your valuable business and personal assets are protected. It’s also worth noting that debt consolidation loans for poor credit customers are often only available in an unsecured variety, from non-bank alternative lenders.
This is because banks are highly risk averse, and don’t generally like to get involved in small business loans of any kind in the first place. If your business has bad credit, then it’s virtually impossible to get any kind of credit or loans from traditional institutional lenders.
That’s why many small businesses with credit problems – and even those with excellent credit – are turning to alternative, non-bank lenders for their debt consolidation and other small business loan needs.
Where Can I Get a Small Business Debt Consolidation Loan?
One such alternative lender is BizFly Funding. They are a premiere non-bank lender, based in the US, that deals exclusively in funding and financing for small businesses.
Their range of products for small businesses include small business debt consolidation loans, small business loans, short-term loans, lines of credit, merchant cash advances, and more. As a non-bank lender, they offer unsecured debt consolidation and other loan and credit products.
And, they can offer all of these with relatively low credit score, revenue, and time in business requirements. That means debt consolidation loans for poor credit customers are readily available, along with other financing options for your small business needs.
