4 Things to Consider When Consolidating Small Business Debt
Taking on corporate debt helps finance expansion. Many small companies, particularly startups, require loans or financing to operate. The SBA estimates that 25% of small enterprises are funded through loans and credit.
Businesses with several debts to different accounts or organizations may benefit from debt consolidation. Debt consolidation is consolidating all your debts into one loan. It differs from refinancing since you want to pay off all your obligations at once rather than taking out a lower-interest loan to pay off a higher-interest loan.
Consolidating corporate debt saves time so you don’t have to track various loan or credit balance payback dates. It may save you money with a single interest rate and good payback conditions.
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If debt consolidation is correct for you
Consolidating debts won’t solve your financial problems. A single payment due date, dependable payment amount, and one interest rate make debt repayment easier. Before consolidating corporate debt, consider these factors.
Start by calculating your debt’s total interest. While interest isn’t the only aspect in selecting a consolidation loan, a reduced interest payment may save you money. Consider your personal and corporate credit ratings when consolidating debt. Interest rates rely on them.
Check whether your cash flow can meet your combined loan installments. If numerous payback dates with different amounts throughout the month may help you pay your payments, consolidating the loans into one payment may prevent you from paying other obligations on time.
Avoid costly late penalties by making sure you can afford your combined repayment. Late payments might also lower your credit score, preventing you from acquiring decent lending rates.
Consider your borrowing and spending history when consolidating corporate debt. Review your behaviors and decide whether you need better company expenditure tactics. Personal debt should not be consolidated with loans. Tax compliance is the main cause. Failure to segregate personal and company spending might make future funding problematic.
Business debt consolidation
Business debt may be consolidated with bank loans, SBA loans, lines of credit, and internet financial platforms.
Bank loans
Bank loans are one of the greatest methods to consolidate company debt, but getting one may be difficult. A good credit score and years in company are usually required. You need solid, verified income.
Bank loans with monthly payments and interest rates under 10% are frequently available to qualified applicants. Banks usually levy prepayment charges for early loan repayment. Smaller regional banks or banks with strong small business advice programs can assist you choose the best debt consolidation and repayment options.
SBA loan
The sole SBA loan for debt consolidation is the 7(a). It’s flexible finance for any loan. It offers up to $5 million in loans with 10-year payback periods (25 years for real estate loans). Monthly payments are made at 5–10% interest. Prepayment penalties are waived for loans under 15 years.
- SBA 7(a) loans have several restrictions:
- Your loan consolidation goals must meet SBA 7(a) requirements.
- Your SBA 7(a) loan payment must be 10% lower than your present debts.
- You must explain why your present loans have unreasonable conditions in writing.
Debt consolidation might include paying off company credit cards using an SBA 7(a) loan. After the epidemic, the SBA offers the COVID-19 Economic Injury Disaster Loan (EIDL) to repay debt or credit card payments.
Online financial loans and lines of credit
Online financial platforms provide lending alternatives to banks. Businesses that don’t qualify for bank or SBA loans might consider these lenders’ loans and lines of credit. Online financial platforms make it easier to acquire a loan or line of credit authorized swiftly without many steps.
Fundshop provides term loans and lines of credit for corporate debt consolidation. Term loans may be repaid progressively over 24 or 52 weeks. You may use as much or as little credit as you need with 12- or 24-week payback options. Business history and payment period affect interest rates. No origination or prepayment fees. Fundshop’s structured repayment plans require regular, equal payments to help you pay off your aggregated debt fast without affecting your cash flow.
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