When searching for business finance, there are a variety of options out there. Debt consolidation could be one option if a crisis suddenly hits – and you need to resolve payments with your creditors as soon as possible.
So you can make an informed decision, as to whether this loan is right for you, we’ve detailed everything you need to know about debt consolidation below:
What is debt consolidation?
Debt consolidation comes in two forms, business and personal, but both are very similar. Using this solution, you borrow an amount of money equal to – or exceeding – the total value of your debts. Then, using the loan, you repay all the creditors you owe money to.
In this situation, your debt isn’t reduced or written off but effectively transferred into one amount. This means one rate of interest and one monthly payment to manage.
As a result, business debt consolidation can be useful in the event of a short-term cash-flow crisis. Your creditors are repaid and then you have just one lender to manage. Get a consolidation loan with a good rate of interest and you could find yourself saving money each month as well.
Why should I consider debt consolidation?
There are several reasons why you should consider a debt consolidation loan. We’ve detailed the main ones below:
Simplify business finance
As mentioned, just having one creditor to repay can make accounting much easier. Instead of juggling multiple lenders, their invoices, and ensuring each gets paid on time, you’ll only have one organisation to manage (the debt consolidation loan provider).
As attractive as simplifying business finance may seem, you may also be able to invest the time elsewhere. With no calls from creditors to answer or their demands to meet, you might find yourself with some additional breathing room.
Improved cash flow
If you get a debt consolidation loan with good interest rates, or with smaller monthly repayments, you should have more money left over at the end of each month. This could then give you additional finance to funnel elsewhere – or bulk up your savings.
Improved credit score
Once you repay your existing lenders, start making payments on-time to the debt consolidation provider, and start shrinking your credit utilisation ratio, you should start seeing improvements in your credit score.
In the future, this may allow you easier access to other financial products or better interest rates.
Business security
If your creditors are making demands for repayment, and you don’t have the funds available, you – and your business – could be at risk of bankruptcy. With a debt consolidation loan, you could have the funds you need to make sure these firms are paid as soon as possible.
Can I get a loan with bad credit?
Getting a debt consolidation loan with bad credit isn’t completely out of the question. In fact, it can be quite straightforward. Whereas some firms won’t provide any form of financing to those with poor credit histories, debt consolidation providers are often more open to these people.
Perhaps it’s because, ultimately, you’re transferring funds instead of seeking a new loan. Regardless, if you have bad credit, debt consolidation shouldn’t be automatically closed to you.
What happens if I miss payments?
Similar to any financial solution, debt consolidation does have risks. For example, not making repayments on the loan – or defaulting on the product altogether – may put your business at risk. It’s for this reason that you should speak with an experienced debt specialist before deciding whether this loan is right for you.
Where can I get a debt consolidation loan?
Whether seeking debt consolidation for business or personal reasons, there are a variety of lenders out there which can help find the best deal for you. Even if it isn’t possible to consolidate your debts, these advisors may be able to find an alternate solution.
