How to consolidate business debt - Bankrate.com

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When you have your own business — whether you’re just starting out or you’ve been doing it for years — cash flow isn’t always a constant. Sometimes you need to pay for unexpected expenses, make payroll or fund new equipment. If you don’t have the cash on hand to afford those things, you might need a business loan.
If you’ve resorted to taking out a few business loans, you might make many different payments to them every month. This means keeping track of different due dates, interest rates and balances. On top of running a business, you might feel like managing the loans is too much to handle. In this case, you may want to look into business debt consolidation.
Business debt consolidation is when you take out a new loan to pay off your existing business loans and debt. By taking out a small business debt consolidation loan, you’re moving many debts into one streamlined monthly payment.
Most often, business debt consolidation works like personal debt consolidation. When looking for a business debt consolidation method, you’ll want to look for loans that offer lower interest rates than what you’re currently paying.
You’ll also want to make sure that the loan covers all the outstanding debt you’re trying to consolidate. For instance, you may find a loan that covers $30,000 in business debt, but your debt might be $50,000. If that’s the case, you’ll want to look at a higher loan maximum.
Consolidation and refinancing are very similar, but there are a few key differences.
While the two are different, you can still manage them in the same way. For instance, if you’ve previously had a business consolidation loan, you can refinance it to take advantage of a lower interest rate.
While every lender will have different requirements, most will look at factors such as your income, credit score and debt-to-income ratio. Below are several steps you can take to obtain a commercial debt consolidation loan:
So is business debt consolidation worth it? This method may be a good option if you want to streamline your payments, but you should be aware of the risks before applying.
If you’re thinking about consolidating your business debt, you have a few choices based on your situation.
Banks and credit unions are some of the most easily accessible options to get a debt consolidation loan for your business. There are usually plenty to choose from, and big financial institutions typically target business customers. Large institutions like Chase and Bank of America may be good places to start.
But keep in mind that you usually need to have a strong credit history to qualify for a bank business loan. Depending on the institution, you may need to have been in business for a few years and showcase your company’s income to be eligible.
Small Business Administration (SBA) loans are administered by the federal government specifically for small companies in financial need. They’re made to help companies without a big financial cushion grow and succeed.
While banks might want years of established credit, SBA loans are made for companies just starting out or those that aren’t as financially stable. SBA 7(a) loans can be used for debt consolidation. To find a lender that issues SBA loans, visit the SBA’s website.
If you can’t get funding the traditional way, you can look at alternative methods, like peer-to-peer lending companies. Companies like LendingClub and Funding Circle are geared toward borrowers who need cash but might not have an established operating history to prove that they’re worthy.
Depending on how you use your debt consolidation loan, it could either hurt or improve your credit score. Consolidating your debt can lower your credit utilization rate as well as diversify your credit history. Simplifying your payments could also make it easier for you to make payments on time. On the other hand, you’d need to avoid using up the credit that would be freed up on your other accounts. Adding a new line of credit can also temporarily lower your credit score.
In order to qualify you for a business debt consolidation loan, lenders will at the following factors:
Business debt, especially from multiple sources, can be overwhelming. If you’re suffering, you may want to consider business debt consolidation.
There are a few methods to choose from, and the best for you depends on your company’s maturity and needs. Before you begin applying, make sure you review all your options to make sure that a business debt consolidation loan is right for you.
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