Debt Consolidation Loan for Startups: A Financial Tool That Can Help Secure Your Company’s Future

Managing business finances is not easy, and it is filled with challenges. However, when there is a sturdy business model in place, it feels like everything is going to be okay. When funds run dry, there are solutions such as business credit cards and mid-sized loans. For a while, these help a great deal until you hit a rough patch. Due to some unanticipated situation (and in business, there tends to be many), costs go up, sales go down, profits plummet, and debts soar. Repaying the existing loans starts to look next to impossible. It is that simple! An unanticipated change in the cash flow can put a business on the edge of bankruptcy before the business owner can even realize what happened.

What are the common challenges?

As a business owner, especially one that is just setting up his business, it can be extremely stressful to deal with the shortage of funds. In fact, lack of funding is one of the major problems that new business owners face. Ongoing debt payments that are due every month seem to wear down on business operations, often hampering deliveries and thereby putting the stability of the business at stake. Everyday business expenses, coupled with unforeseen expenditures in times of emergencies, make it a little too overwhelming to deal with loans and debts. To run a business smoothly, it is not only essential to have steady cash flow, but it is also critical to ensure that expenses do not exceed income.

If this scenario sounds familiar and if some unexpected change has created an obstacle in your regular cash flow or has compromised your ability to pay back existing debt thereby putting your business at the risk of bankruptcy, you may benefit from considering a debt consolidation strategy.

What is a debt consolidation loan?

Debt consolidation refers to the process of joining or combining all existing lines of credit or loans into a single account and apply for a consolidated loan at the lowest available interest rate. This way, instead of multiple payments each month, the applicant needs to arrange for just one payment. This type of loan is used for dealing with out-of-control loan payments that can seriously jeopardize the stability and future of a business, especially a startup. A point to note here is that your business loans should be separate from your personal debt. You can hardly consolidate both personal and business debts into a single consolidated loan.

When is the best time to opt for a debt consolidation loan?

There are times when you can benefit the most by applying for a debt consolidation loan:

  1. If your credit score has seen a significant improvement since the last time you borrowed money for business, you can use that status to get a low-interest consolidation loan. An impressive credit score reflects the fact that you are a more responsible borrower.
  2. Seeing an increase in income, securing new sources of revenue, reducing outstanding debt, and increasing equity in a piece of real estate (which you can put up as collateral) can also help your cause.

Accomplishing a vital business objective and improving your company’s financial condition can also work as favorable factors.

What are the main benefits of this type of loan for a startup business?

Debt consolidation loan does not only help to reduce overall loan costs, but it also has multiple other benefits. Below are some of them:

  1. It helps to reduce the APR.
  2. It reduces the monthly payments, which helps to recover business cash flow.
  3. When repaid on time every month, it improves credit scores, which allows startups to find proper funding in the future.
  4. It enables businesses to simplify their cash flow management by consolidating existing business loans, arranging one monthly payment, and that too, at the lowest available rate.
  5. It frees up credit lines, giving startups a considerably higher degree of flexibility in their spending.
  6. By consolidating existing business loans with variable rates, the debt consolidation loan can make payments more predictable, which ultimately helps with financial planning.

Is debt consolidation the right option for you?

Of course, the answer to this question depends on how acute the situation is for your startup. Managing several debt payments throughout the month comes with much hassle. You have to keep up with different repayment dates and handle calls from multiple creditors. It can cause your company’s daily activities and performance to take a severe hit. That is why you need to see solutions before it is too late! You would obviously need to talk to a financial advisor before you can go ahead with it. The consultation will help you get a clearer picture of your company’s financial condition and the available options.

How to go about consolidating existing business debts?

Consult a financial advisor first to gauge your situation and prospects. If you think consolidating your business debts is currently the best available option, you must start researching on debt consolidation companies near you. There are numerous companies like from where you can broker your new loan. The company you choose will act as a mediator between you and your previous creditors. Consolidated debt loan is available in secure and unsecured forms. The previous one requires collateral, but the latter does not. Discuss with your financial advisor before choosing one.

Do note that a consolidation loan may come with a low-interest rate and that might seem very appealing. However, if your company’s financial situation is a little too serious, that reduced rate may not be worthwhile. Also, consolidating your debts does not mean they are gone. They are still there, and you are just making a single payment every month to repay them. Thus, strategic financial management is a must to ensure that your business functions do not get hampered. With sound financial planning, timely repayment of debt and considerable savings, your business can soon start to make profits, and you can invest in its growth.

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