Every business will require ongoing funding as it grows. Some companies and businessmen are experts in keeping their debts in check, but others soon realize that they have gone deep into debt by going through the wrong path. That is when debt management becomes the biggest hassle they need to face.
Years of poor financial management may lead to multiple businesses loans, credit card debts and so on. After a careful scrutiny and examination of your debts, you may get the clarity on how the number of debts spiraled out of control.
Identifying the debt situation
Upon reviewing the company’s finances at present, you may be able to find it yourself whether you are in any of the following two positions:
- You are comfortable with your current financial standing and have a fair control of the debts (if any).
- You may identify that the business is clogged up with too much of debt and you need a breathing space to work on it.
Be happy with the first situation, but ensure that you are able to manage the same status overtime without adding up more financial burdens, while properly handling the existing debts. If it is the second case, to get that most needed breathing space, debt consolidation may be an ideal way out.
The first question you need to answer while reviewing the option of debt consolidation is whether you have only one debt or if there are many?
If there is only one loan, keeping track of it is much easier and it will not be proving out to be big burden overtime. However, if you find the interest rates high or the terms associated with that loan troublesome, you can think of an alternative option of shifting it to a more comfortable loan with less interest rate. On the flip side, if there is more than one loan and you are finding it a trouble to handle it, especially as a small business owner with no standalone system for debt management, think of debt consolidation.
If you have more than one loan, there is a key question you need to ask yourself and that is whether debt consolidation is the most ideal financial solution.
As we can infer from its name, debt consolidation is nothing but taking up one big loan to pay off many of your existing smaller loans and get all consolidated to one with a single monthly repayment. Being liable to a single lender and by making the accounting process much easier, consolidation can give you a lot of relaxation and peace of mind, but you should remember that it is not the complete remedy for your financial burden.
A few benefits of business debt consolidation
As you now have much finer information about debt consolidation, it is good to have a deeper understanding about the benefits of it. Few major ones include:
- It can help improve organization performance and save time by eliminating the need for multiple loan repayments
- Help reduce monthly costs with a lesser interest rate by stretching the repayment over a longer period.
- The need to deal with only a single creditor as opposed to the pressure from multiple lenders.
- You can consolidate your loans without any negative impact on the credit scores.
You may come across thousands of debt consolidation reviews online if you search for it, but it is essential to have an in-depth understanding of the pros and cons of debt consolidation in your specific case to move on with it.
Process of debt consolidation
If you reach up to the point of choosing debt consolidation as a way out, then next is to execute it successfully, being careful about various aspects by moving one step at a time. We will discuss the step by step approach to it as below.
- Step 1
Try to gather as much information as possible. Not just about the options for debt consolidation and the types of loans available, but also about the lender, reputation of the lender, and the actual fund requirement for you in order to effectively consolidate debts.
- Step 2
Do appropriate financial analysis to identify what sort of debts you need to consolidate. There is no hard and fast rule like you need to consolidate all existing loans altogether. Say for example, if you have four debts, you can go ahead with consolidating just three out of it if that is your need by paying off the fourth in full.
- Step 3
Just compare your current situation against the benefits you may enjoy from consolidating. This requires calculating the monthly payment against all the existing loans. While doing so, you need to consider the pending principal as well as interest pay-offs along with any additional fee against pre-term closing. Once you have a clear cut understanding about the current obligations, compare it with the burden after consolidation. If you are saving money with it, then surely it may be ideal move to consolidate.
- Step 4
Choosing a good lender is one of the most important aspects of debt consolidation. There are many lenders offering various types of business and personal debt consolidation solutions. So you need to explore as many options as possible to compare various aspects and identify the best. Some of the major aspects that you need to check include:
- The procedure of applying for a loan.
- The type of loan available.
- All terms and conditions.
- Interest rate – fixed or variable.
- Repayment term – is there any pre-term fee on closing the loan early?
- Customer service
- Time taken for approval etc.
Once you consolidate your debts, there is no turning back. You have taken a significant leap and you have to deal with the new situation effectively. As discussed above, debt consolidation is not the end of all your financial troubles, but you have to be more vigilant and planned to make sure that you don’t fall into a deeper debt trap over time.