A Guide to Finding a Debt Consolidation Loan
For many small business owners, loans are a necessity to cover unexpected expenses- but for those that have multiple debts, it can be hard to keep up with the various due dates and payments. This is where a debt consolidation loan can be helpful. A debt consolidation loan can help business owners pare down to one single payment, usually at a lower interest rate.
What is Business Debt Consolidation?
Business debt consolidation is when several loans are combined into one. This way, instead of having several payments, you only have to worry about one. Debt isn’t bad, per se. in fact, it’s where most of the funding comes from for small businesses and it’s a great option when emergencies come up or you have a chance to grow. However, for many, it carries a stigma.
A small business debt consolidation loan is a lot like a personal debt consolidation loan in that payments are streamlined. For many years, banks were the only option, but these days, you have other avenues.
The process is simple: decide what debt you want to consolidate, choose and apply for a loan and then use the proceeds to pay the debt. Then, you’ll have one payment to worry about.
Business Debt Consolidation Loan Options
At one time, banks were the only option. These days, business owners have several options. Here are a few of those:
• Bank loans
• SBA loansStandard 7(a) Loan
• 7(a) Small Loan
• SBA Express Loan
• 504 Loan
• Alternative LendersDirect private lenders
• Marketplace lenders
• Crowdfunding platforms
Tips for Choosing a Business Debt Consolidation Loan
Now that you know you have options, it’s important to note that there’s more to it than simply checking the interest rate. You must take the time to consider other factors, including the terms and the lender. Before you apply for a business debt consolidation loan, you’ll want to do the following:
• Think about your why for consolidating your debt
• Read the details on your existing loans
• Determine if you will save money
• Consider the terms of the new loan versus the terms of your current loans
• Make sure the lender is accessible in the way that makes the most sense to you
• Get the paperwork in order
Business Debt Consolidation Loan Advantages
There are several reasons why a business debt consolidation loan makes sense:
• Lowers interest rate
• Easier to pay (one versus several)
• Frees up cash flow
Business Debt Consolidation Loan Disadvantages
Of course, there are also a few disadvantages to a business debt consolidation loan. They are as follows:
• Extends loan terms
• You need a good credit score to get good rates
• Not a miracle cure
FAQs for Business Debt Consolidation Loans
There are always questions when it comes to business debt consolidation loans. Here are three of the top questions that are often asked:
Does it hurt your credit?
It’s possible it can hurt your credit- but the answer for this depends. If there is a loan or balance transfer card, the lender will submit a hard inquiry to your credit. These can cause your score to dip, but it will be short-lived. You may lose 5 points on the inquiry, but this typically clears up within 3 to 6 months.
That being said, if it ultimately helps you get ahead of your debt, your credit score will ultimately be helped. When used properly, business debt consolidation may bring a short-term credit dip, but you’ll have long-term improvements.
How does debt consolidation differ from refinancing?
Many people assume that debt consolidation is the same as refinancing. You’re taking existing debt and rolling it into new debt with a new/different payment. While it’s similar to a refinance, the difference is the scale. Debt consolidation can take several loans/credit lines and combine them into one. Refinancing is just for one credit line or loan and involves negotiating with your lender to change the loan terms. Refinancing will change rates/payments but only on a single debt.
Should you use a debt consolidation company?
There’s no simple answer to this either. What is best for one person/business may not be ideal for someone else. Your circumstances determine the type of debt solution that is best. If you can’t keep up with payments, debt consolidation could help you avoid defaulting, decrease your financial stress, and preserve your credit.
On the other hand, if you don’t have any issues making payments, debt consolidation is likely to extend the amount you pay to resolve your debts because it often extends the terms, which gives the debt more time to accrue interest.
The best way to decide if this is a good solution for you is to compare terms and interest rates. Determine what you need to pay currently to resolve the debt and compare it to the financial stress of current payments versus new payments. This will help you decide. If you do find that a business debt consolidation loan is a good option, contact Atlas Capital Solutions today to get started.