According to reports, small to medium-sized enterprises and family businesses in the US owe a total of $5.5 trillion.
Business debt has been skyrocketing, reaching historically high amounts (according to the Federal Reserve), and has more than doubled since 2008.
In some situations, taking out a business loan is a necessity for the health, or even the birth, of your business. However, if business debt starts to stack up, this can just lead to more and more debt, until you wonder how you are ever going to pay it all back and run your business profitably.
If you are in this situation—you may be considering whether or not you should opt for a business debt consolidation loan. Consolidation loans can provide the key to getting out of vicious debt cycles, both on a personal and business level.
However, you need to be aware of how the different options work, as well as how to select the best solution for your needs. Otherwise, you could saddle yourself with a new loan that leaves you in even more debt than before.
Fortunately, we have got the goods. Keep reading for everything you need to know about business debt consolidation and business debt resolution.
How Much Business Debt Is Healthy
It has been said that the best business models rely on low or no capital requirements.
However, not all business are the same, and if you are involved in a sector which does require capital injection from time to time—getting a business loan can be a smart move. You get the cash you need, without the hassles and risks of bringing investors on board.
However, there is a limit to how much debt is healthy for a business to hold.
There is no one figure to go by, as all businesses and situations are different. However, as a rule of thumb, you should always ensure that any loans you take out are for the explicit purpose of business growth, and that they have specific outcomes attached to them.
For example: “This loan is going to enable us to build up a second construction team that will almost double revenue and allow us to keep up with demand and our competitors.”
If you find yourself taking out business credit not to grow, but rather to survive, then you know that something has to shift.
The one way this can happen is through debt consolidation.
What Is Debt Consolidation?
Before we dive into business debt consolidation loans, let’s take a quick look at what exactly debt consolidation is.
A debt consolidation loan is the practice of combining one’s debts, often through the use of refinancing.
Doing this poses a couple of advantages. One, you only have to make a single payment each month, which is easier to keep track of. Two, in many cases you might be able to secure a better rate of interest than the average interest rate on your present debts.
Taking out a new loan is one way to consolidate your debts. This is also a form of refinancing.
How Business Debt Consolidation Loans Work
A business debt consolidation loan is a loan that covers your existing debts.
Once you take out the loan, you can use this to adjust your business’s current debts. After this, you will be left to pay off the new loan.
The key to successfully consolidating your business debts via a loan is to select one that has a lower interest rate than the average interest rate on your current debts. This will allow you to pay off the consolidated loan faster.
By settling your present debts and meeting the terms of your new business loan, your business’s credit score will likely improve.
Take note, however, that to qualify for a business loan with a low interest rate, your credit score will have to already be in good standing. If you have been struggling to meet the terms of your current liabilities, then there is a chance that your credit score will have already been decreased by late payments.
If this is the case, and you can’t find a loan with low enough interest rates to make consolidation via a business loan feasible—there are two other solutions that might be available to you.
Other Business Debt Consolidation Solutions
In the event that you cannot qualify for a business loan with a low or reasonable rate of interest, you can also look into debt consolidation via a debt consolidation company, or through a balance transfer card.
Debt consolidation companies typically have less stringent credit score requirements for their offers. Upon signing up with a debt consolidation company, they will typically work with your creditors. The aim of this is to secure a reduced principal debt amount at zero percent (0%) interest on your business debts.
After this, they will set up a debt payment solution, and you will pay them one monthly sum, which they then disperse to your debtors. What’s unique about this process is that you pay no fees for the service until your debts are paid off at much less than what was originally owed.
This solution has the advantage of lowering your principal debt amount, lowering your interest rate to zero percent (0%), improving terms, simplifying payments, and getting debt collectors off your back.
The other solution you can investigate is a balance transfer card. If your business is shouldering a large amount of credit card debt at high-interest rates, by opening a balance transfer card you can consolidate this and potentially pay less interest.
Some balance transfer cards offer interest-free terms for a period, usually between 6-24 months. If you can pay off the card debt in this time, you will enjoy zero-interest rates for the period.
Do You Need a Business Debt Consolidation Loan?
A business debt consolidation loan could be the key to freeing your business from debt and allowing it to reach its full potential.
If you need to start looking for debt consolidation options for your business, then we recommend that you start by utilizing our matching tool. By inputting your details, you will be instantly provided with a list of the best debt consolidation solutions for your business.
This process will take all the legwork out of looking for a consolidation loan, and provide you with a list of vetted and tailored options within minutes.
Please feel free to contact us if you have any questions.