Small Business Debt Consolidation Loans: When to Consolidate Debt

Small Business Debt Consolidation Loans When to Consolidate Debt
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Debt is a natural part of managing a business. For many small businesses, much of their operating capital and other expenses need to be debt-financed.

After all, you typically need to purchase equipment, property, and inventory before you can turn that investment into revenue and profits. But sometimes, debt can get out of hand, and be hard to manage.

In those cases, small business debt consolidation loans may be exactly what you need. These loans allow you to pay off existing debts, and bring that same amount of outstanding debt into a single loan with a single servicer. 

In this guide, we’ll look briefly at what exactly debt consolidation is, and how it works. We’ll further explore debt consolidation compared to debt refinancing and debt settlement, which are all somewhat different processes with different financial implications and uses. 

Finally, we’ll focus on when the best time is for a business to consolidate debt, and what kind of markers or indicators can be used to know when it’s the right time for your business to take out a business debt consolidation loan.

What is Debt Consolidation?

Debt consolidation, as a process, is fairly simple to understand. You pay off multiple debts that you currently have with different lenders by taking out a new, larger debt – a business debt consolidation loan. 

This provides you with a single loan from a single servicer, with a single repayment due each week/month/whatever the terms of the loan may be.

Debt Consolidation

The net effect of debt consolidation is that you can reduce the time and effort needed to manage your debt, and save on the various service fees (and any potential late fees or penalties) with your existing array of loan servicers.

At the same time, if you can obtain a small business debt consolidation loan with a better interest rate than your current debt and/or better loan terms, this can save you money – perhaps significant money – in reduced interest expense. 

By utilizing a small business debt consolidation loan, you can also increase your available credit.

Paying off existing small business loans and other small business funding products with other lenders will typically improve your credit score, and may allow you to take out new debts (if necessary) with those lenders in the near future.

Whatever your particular existing debt load looks like, and whatever your current financial situation may be, you can generally improve it by taking advantage of debt consolidation with business debt consolidation loans.

Debt Consolidation vs. Debt Refinancing vs Debt Settlement

Debt consolidation is often confused with debt refinancing. They are related processes, but slightly different. Debt consolidation, in and of itself, is merely the consolidation of debts – it does not necessarily mean a decreased effective interest rate. 

Debt refinancing is the opposite, where you may not necessarily consolidate debts into a single debt instrument, but seek to refinance the debt with a lower interest rate, different loan term, or both.

Debt Consolidation vs. Debt Refinancing vs. Debt Settlement

At the same time, there is debt settlement, which is a very different way of handling debt. Debt settlement involves settling debt with your lenders for less than they are owed, and is usually a stop-gap measure for companies in severe financial distress. 

It’s more in the vein of bankruptcy, or an action moving along that path, than it is a healthy and regular means of improving your debt situation and proceeding with normal business operations. For that, you want debt consolidation and/or debt refinancing.

When to Pursue Debt Consolidation for Your Business

There’s never a bad time to consider debt consolidation for your business, provided the rates and math works out in your favor.

When to Pursue Debt Consolidation for Your Business

The biggest bang for your buck, so to speak, would be to take out a business debt consolidation loan when one or more of the following situations or statuses are true:

  • You have multiple debts from multiple servicers.
  • Your credit score has improved from the time you originally took out one or more of those existing debts.
  • Your business’ finances have improved from the time you originally took out one or more of those existing debts.
  • The market interest rates in general are lower than at the time you originally took out one or more of those existing debts.
  • You’re losing money in the form of lost time and effort due to the complexities of repaying multiple debts at different times to different servicers every month.
  • You’re losing money in the form of service fees, late fees, administrative fees, and other deductions with your multiple debt servicers.

Ideally, you want to take out a business debt consolidation loan at a time when your finances are good, so that you can secure the best possible rates on your loan and get a loan of sufficient size to make a dent in your existing debt. 

This will save you the most in reduced interest expenses as compared to your existing debts.

However, if you have a lot of debts in credit cards or other high-interest instruments, then regardless of what the market is doing or where your credit score or finances may fall, you should consider a small business debt consolidation loan ASAP to reduce your rates and keep more money in your business.

Small Business Debt Consolidation Loans from BizFly Funding

BizFly Funding is one of the premiere private lenders in the US. They’re focused on providing small business owners with the small business funding options they need to succeed. 

If you’re a small business owner looking for small business debt consolidation loans, then consider BizFly Funding. You can apply online with a convenient and easy-to-use application.

After that, you’ll be contacted by one of the BizFly Funding team to discuss your debt consolidation and other small business funding needs. 

You can have your funds in as little as 1 business day once you’re approved, too. To learn more or to start the application, visit https://bizflyfunding.com.

Frequently Asked Questions about Business Debt Consolidation Loans

If you are looking to combine some or all of your business debts into a single payment, then you’re absolutely looking for a business debt consolidation loan.

You can use the funds from this kind of small business loan to pay off existing debts, effectively replacing them with this single loan instrument. 

Business debt consolidation loans allow you to save money and hassle associated with having multiple debt servicers or lenders to deal with.

If you are able to obtain a debt consolidation loan with a lower interest rate than your current debt, you will save additional money in lower interest expenses – a win-win.

Too often, people think that debt consolidation will have a negative impact on their credit, and therefore avoid it. This couldn’t be further from the truth. 

Debt consolidation loans are simply loans that allow you to pay off existing debts. They don’t change your overall total outstanding debt, but do simplify repayment and save you money. 

Business debt consolidation loans should have no negative impact on your credit. Debt settlement, on the other hand, where you settle with creditors for less than they are owed, will very much impact your credit. 

This is where the confusion and misconception typically originates.

Debt consolidation can save you time, hassle, and money. 

By consolidating your debts from multiple servicers into one, you can save on fees, align your monthly repayments to a single date, and have only one payment due each month instead of many. 

Depending on your business credit score and financial situation, as well as the markets, you may be able to obtain a business debt consolidation loan that provides a more favorable interest rate than the average rate on your existing debt, saving you further money in interest payments. 

In short, it’s almost always a good idea to consolidate debt, with more benefits available depending on the math and the details of your particular situation.

Every lender is different, and has different requirements to be eligible for their debt consolidation loans. At BizFly Funding, one of the premiere private lenders in the US, you can obtain a debt consolidation loan even with a relatively low credit score. 

Every customer is different and every case is different, but businesses looking for debt consolidation are encouraged to apply, regardless of credit score or other details. 

One of BizFly Funding’s team members will be in touch shortly thereafter to discuss what options are available for your business debt consolidation loan needs.

It’s always better to pay off your debts than to settle them via debt settlement. That process is more akin to bankruptcy (though not the same), and has a serious negative impact on your credit and finances. 

By contrast, debt consolidation allows you to immediately pay off all your current debts. The amount outstanding in total doesn’t decrease, as you now have a business debt consolidation loan to pay off. 

But the debt is now consolidated into a single loan with a single servicer, often at a better interest rate, too.

Debt settlement is a very different process with far more dire consequences, and is not typically offered by banks or private lenders, but specialized debt settlement companies.

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