If you have multiple business loans, consolidating your loan is a smart move. Having loans from different lenders, especially if those loans have different rates of interest is a real pain. Debt consolidation is not only cheaper as it allows you to take advantage of lower interest rates, but it is also more convenient and helps you to keep track of your loan repayment efforts.
Before you can consolidate debt, you need to consider whether it is the most beneficial move for your business and how to go about it. Regardless of whether you want to put together small or substantial business debts, below are the steps you can follow to assure success.
Check if consolidation will work for you
There are several factors that should be in play for you to succeed in your plan to consolidate debt. First, check that you have a good credit score that will qualify you for a loan. An excellent personal credit score is also important, although it may not count for corporate businesses that are considered separate legal persons. Also, check if your business and personal revenues inspire confidence in lenders before you decide to consolidate. Lenders will look at these factors when deciding whether or not to accept your loan application.
If you fall short in revenues or credit score, try to make improvements so that you can benefit from a reduced rate and longer-term repayment.
Consider your goals for consolidating
Consolidation goals can include having a lower rate of interest or a lower payment to leave you with more cash for liquidity purposes. You can also be considering consolidation to be able to manage your debt better. The purpose of your debt consolidation will help you choose the loan option which will work for you.
Adding up your debts
Choose the loans you would like to consolidate. If you have many loans, you may want to first choose the few that have very high rates of interest. Their cumulative amounts plus interest should dictate the amount of loan you will need.
Shop for the most suitable lender
Once you have your figure, you can go ahead to get a loan. Be sure to shop around for the best lenders who match your business. Compare annual interest rates, consider if they are fixed or variable, and also choose a repayment period that works for you.
Where to get a loan
You have various options of where you can obtain a loan. The most common source is;
- A bank or a credit union
These lenders offer loans at competitive rates hence their popularity among borrowers. Repayment terms may do up to 10 years. Small businesses may have a hard time obtaining a loan as banks prefer more established businesses unless they have high credit scores.
- Small Business Administration (SBA)
The SBA offers several types of loans that are suitable for small businesses. There are 7(a) loans that businesses can use for debt consolidation, where a small business can borrow up to $5 million for funding. These loans carry competitive rates. Although these loans are mostly offered to businesses that have a good credit score, startups with lesser financial reputation may be able to access loans through other programs that SBA offers.
- Online lenders
If the above two options are not feasible for your business, you can turn to online lenders. You can find competitive rates among online lenders and be able to borrow as much as $500,000 to consolidate your debt. Most online loans are on a term basis, and terms can go up to 5 years.
Paying the new loan
When your loan is approved, pay off the loans you wanted to consolidate immediately. Money in one’s hands can be tempting, so the quicker you pay, the better. After, start making payments on the new loan and be consistent about it to avoid penalties and costs default and delinquencies.
When shopping around for a business debt consolidation loan, take time to read the terms of the loan. What you will be looking for is anything you can use to your advantage or a catchphrase which could put you on the losing edge. Most lenders offer incentives for early payment of the loan, something you may want to consider.