Importance of Debt Consolidation for Small Business Ventures

The business landscape is laden with challenges! When it comes to business development and debt repayment, small business ventures face issues with insufficient funds. It is where small business debt consolidation loans play an instrumental role in helping a small business firm to manage their debts better. It is helpful in making the regular payments less frequent.

Small business ventures might find repaying one debt amount stressful. And on top of that if you have to repay debt amounts from various lenders, then keeping track of all these payments seems a challenge. Equally challenging is maintaining a stable cash-flow that at times can go out of hand. That's not all! Situations can become worse when the various interest rates from such multiple sources of small business debt can hugely hurt your finances. A debt repayment cycle is something that no business owner would love to face. However, it’s a sad reality for many entrepreneurs and business owners.

However, small business debt loan consolidation can bring about a world of difference! It can make your debt repayment highly manageable and within your budget as well. But for this, you need to how debt consolidation loan can work for small businesses, from where you can procure the best investments and how to customize all your repayment schedules.

Types of debt consolidation loans for small business ventures:

Most of the popular debt consolidation loans for small businesses, i.e., secured, unsecured or anything else, usually are the long-term consolidation loans. The process of business debt consolidation is such that, you would prefer that your choices are long-term in comparison to the present funding. Apart from that compulsory rule, all your financial consolidation loan choices for your debts depend on various aspects. The important ones include the revenue your business generates, business age and the credit score. All these put together will impact the availability of business consolidation loans. 

Do you have a small business venture? If yes, then here are some of the debt consolidation loan options that you can consider:

Importance of Debt Consolidation for Small Business Ventures

1.  The traditional bank loans:

Generally, a bank loan is the ideal way to consolidate the debt that you've incurred. However, you must qualify for the credit as well. It's a known fact that Bank loans come in the lowest possible interest rates as well as most extended terms.

Furthermore, banks also lend a large capital to people in need. The term length is generally for ten years, and the payment has gets done monthly. Also, the interest rate is much less than 10%. 

2.   The SBA loans:

It is the next best option after the traditional bank loan. The SBA loan (Small Business Administration) ensures credit that's given by direct lenders as well as banks. The guarantee can assist you in qualifying a loan amount that you otherwise couldn't have qualified if it was a traditional bank loan amount. Concerning the loan amount, it can go up to an amount of $5 million. The term length can vary between 7 and 25 years. You have to repay the debt amount monthly, and your interest rate starts at 6.75%.

3.   The Credit Solution Providers:

Owners of small business ventures can look forward to debt consolidation loan from any leading credit solution provider as well. Here you can withdraw as much as $350,000 or more. It means customers have ample money to consolidate their business debt. Here the term length is less, and it varies between one and four years. The repayment frequency is twice a month, and the rate of interest starts at 7.9%. If you notice, such service providers don’t allow low bank rates as the SBA loan. You can qualify for a loan from a credit solution provider much more accessible than any other loan types.  

Now that you've known about small business debt consolidation loan and the types of loan available, there's probably is another question that you want to address. That is if a debt consolidation loan is apt for your small business venture. To explain that let us consider two scenarios at hand.

• You get faced with several loans with a high interest rate:

Does your existing loan amount have a reduced interest rate? If yes, then it’s not likely that debt consolidation is needed or apt for your business. Generally, the more your rate of interest goes on the existing loans, the more advantageous a debt consolidation loan for small business will be.

Furthermore, even when you get equipped with the debt consolidation loan, your procured interest rate will depend on several aspects such as the yearly business revenue, your credit score and the number of years you've dedicated to your business.

Just in case one of these aspects remained the same or got improved since the previous time you made an application for a loan. You might get a better interest rate when you opt-in for a debt consolidation loan now.

• You are encountering  a short-term loan that you want to expand:

Have you taken many short-term investments which you want to clear off by taking some time at hand? If yes, then you can consolidate the debt amount into one single term loan. Most small business owners make their loan amount thinking that is going to add on the business growth and expansion. However, just in case you need more time to realize the ROI (Return on Investment), then debt consolidation loan might be a fantastic way to get some extra time before repaying the overall debt amount.  

Nevertheless, you need to keep something in mind. The primary objective of debt consolidation can create a costly vicious cycle. So you need to ensure that the business revenue that you are counting on is sufficient to encompass the entire loan amount. It also comprises an additional interest that will get added. 

Every small business sometime or the other has to face a cash crunch. Also, the company might be in debt for paying their employees, paying inventory expenses and other business expansion needs. And this leads the small business to a debt trap. A small business debt consolidation loan is an ideal solution to this that helps in clearing off the debt in a simple way.