In today’s world, the first thing one does before starting a company is to get credit. It is seldom that you find a company, which doesn’t use credit. Credit has become a synonym to business. Hence handling credit is one of the key paths to success.
The difficulty rises when the debts increase so much that the entire focus goes onto clearing debts as opposed to earning money or further growth of the business.
A wiser thing to do, especially in case of multiple unsecured loans, is consolidation of loans and turning them into a single secured or unsecured loan. A secured loan ensures lower interest rates and more savings. Hereafter you can take care of two aspects at a time – earning and credit.
Just like personal debt consolidation, business debt consolidation means to consolidate various unsecured loans into one single unsecured loan or secured loan against an asset that acts as a collateral. The single loan to pay off other debts, in this case, is called business debt consolidation loan. Just like the consumer credit counseling for individuals, these business debt consolidation companies exist for helping business set-ups handle their finances effectively and also avoid bankruptcy.
By negotiating with various parties like business lenders, corporate credit agencies, vendors, collection agencies, suppliers, attorneys etc, these companies chart out a new repayment plan for businesses. This helps as it leads to the reduction of interest rates.
Advantages of tying up with a business debt consolidation company
- Re-vamp the existing structure of debt payment and reduce net lesser monthly payment.
- Avoid bankruptcy and smoothen flow of finances.
- Give attention to the business growth as opposed to struggling with credit.
- Increase safety of company assets.
Small business debt consolidations
This can be done in two different ways. The first and the most common one is to approach a single lender and avail a single loan (business debt consolidation loan), which will take care of all your debts and payments. This pretty much works on the same principle as personal loan consolidation. Based on the agreement with vendor there will then be one single payment every month to the lender.
In this method you need to be wary of the interest rates paid to the lender vs. the cumulative interest rates being paid to individual creditors. If the interest paid to these creditors is already less, then this method doesn’t make much sense, as the business will be paying more to retire the entire debt.
The advantage here is that since the payments made to your vendors etc are in full, it leads to a zero balance account improving your credit score. It also helps you strengthen relationships with vendors and suppliers.
The other method that comes into picture, especially when the above method is not very effective is to involve a provider. A provider acts as a middle party between your creditors and you. The provider is responsible for either negotiating a wavier on your debts or working a way out to effectively manage finances and reduce the monthly payments to a lesser amount. This will help the business to gain more time to pay off the debt.
This method will be effective only if the provider can re-arrange or negotiate a considerable sum so as to offset the fee charged by them. In other words, if the cumulative interest rates being paid after the rearrangement are not lesser than the amount paid before, this could be a wasted effort. The fee charged by the provider will bring your monthly net payments back to the same amount. So it is important to compare the money being saved with the provider’s fee.
Business credit card debt consolidation
A business credit card is one with which a business can purchase goods worth any amount (subject to the maximum credit limit). This may come very handy during emergencies, but when it comes to managing monthly payments, it could prove to be hassle.
An effective way of handling this would be to consolidate your credit card debt. Consolidating two or more credit card debts into one credit card with low interest rates does this. This will help you save due to the low interest rates and help you manage your finance effectively due to one single payment every month.
With any consolidation loan, comparison is the key to its effective implementation. It is very important to compare your new and existing debt rates if you don’t want to pay more than what you are already paying.