Business Debt Consolidation
Business debt consolidation can make sense when a small business owner carries multiple forms of debt with multiple creditors and varying payment schedules.
A business owner can use the proceeds from a business debt consolidation loan to pay off multiple existing loans all at once, thereby streamlining the repayment process into one single monthly payment, often at better terms and a lower blended interest rate.
The process of pursuing effective business debt consolidation is relatively straightforward, but it does require careful organization and planning. Let’s take a closer look.
The first step toward pursuing business debt consolidation is to get a clear picture of all outstanding business debts – amounts, lenders, payment schedules, interest rates, maturity dates and prepayment penalties.
Awareness of prepayment penalties is important because these can reduce the benefit of debt consolidation and become a factor in determining the financial usefulness of debt consolidation. This does not, however, diminish the convenience that results from simplifying the repayment process through debt consolidation.
Next, add up the total amount due from all existing loans and calculate the blended annual percentage rate (APR) of the total debt. This blended APR is the blended annualized interest rate – including all fees – that your targeted debt consolidation loan should beat. With your targeted APR in mind, it will soon become time to visit banks and online lenders to find the best business debt consolidation loan.
Bank and SBA Business Debt Consolidation Loans
Business debt consolidation loans can be either secured or unsecured and have varying duration’s, but as a general rule, always pursue a loan length longer than any existing business debt. Traditional banks are a good place to start – as they often offer the best terms, interest rates and duration’s (often exceeding ten years) – but these lenders are strict in their approval process.
Both nationally branded and community banks will take a close look at your credit score, and the revenue profile and trajectory of your business before granting a debt consolidation loan. Next up, a loan guaranteed by the Small Business Association (SBA) can help business owners qualify in instances when they have been rejected by a traditional bank. SBA loans have long duration’s of up to 25 years while offering interest rates as low as 7%.
Online Business Debt Consolidation Loans
There are several online options for those businesses pursuing debt consolidation loans that encounter difficulty in securing lending from traditional banks or the SBA. Funding Circle offers loans of up to $500,000, duration’s of up to five years and interest rates as low as 5.5% with funding often provided within ten days.
Fundation offers loans ranging up to $350,000 with APRs as low as 8% to businesses that generate a minimum of $100,000 in annual revenue. However, with durations of up to four years, loans from both of these lenders don’t offer the flexibility of longer-term bank and SBA loans. Meantime, Smartbiz is an online marketplace for SBA loans of large size (as much as $5 million) that typically come with longer duration’s of 10-25 years and interest rates in the 7%-9% range for those who qualify.
Finally, Lending Club offers business debt consolidation loans of up to $300,000 with term lengths of up to five years and interest rates as low as 6%.
Pros and Cons of Business Debt Consolidation
There are two primary advantages to a business debt consolidation loan – streamlining the repayment process and, ideally, saving money on interest expense. It can be difficult for a business owner to juggle multiple debts with varying due dates while managing cash flow and balancing books. Such a situation can give rise to overlooking or missing payments, simply out of confusion.
One simplified monthly payment to a debt consolidation lender solves that problem, as the proceeds from the debt consolidation loan are simply distributed to existing business creditors. Business owners who receive debt consolidation loans usually don’t even get their hands on the actual funds – the money gets divided up by the debt consolidation lender and goes straight to existing creditors.
The second primary advantage can come in the form of interest expense savings when the APR on the business consolidation loan is lower than the blended APR (taking into account all fees, including prepayment fees) of all existing business debts.
The possible disadvantages of a business debt consolidation loan lay in total interest expense that is to be paid over the life of the loan. Because business debt consolidation loans will be of longer duration, even with the case of a lower blended APR, interest expense will accrue over a longer period of time and can make the consolidation loan more expensive than the existing debt scenario.
While longer terms can allow for the convenience and flexibility of a lower monthly payment, the total cost of capital over the life of the loan could increase as a result of the longer loan term. Furthermore, when existing business debt is consolidated, business debt balances that are paid in full already include interest that has accrued on original loan principals, thereby creating a debt consolidation loan with a principal that includes accrued interest from the previous set of existing loans.
This creates a situation of compounding interest expense on top of previously accrued interest expense, something that may prove the debt consolidation loan financially untenable in relation to the existing debt scenario.
Should I Pursue Business Debt Consolidation?
If you are a business owner with multiple high-interest rate loans, a personal credit score of 700 or higher, (650 or higher if your business’ finances and revenue trajectory are on the upswing) and have been in business for at least one year, there is an excellent chance that you can reap the primary advantages of a business debt consolidation loan.
The convenience of streamlining multiple monthly payments into one single (often lower) monthly payment, in combination with a lower blended APR that results in interest expense savings over the life of the loan, can make business debt consolidation a wise choice. However, examine closely the total interest expense over the life of a debt consolidation loan as compared to the existing debt scenario before taking out the business debt consolidation loan.
Handling my business debt was not something I looked forward to
Handling my business debt was not something I looked forward to. But United Settlement was so patient with my questions and helped me figure out how to handle my debt as a small business owner. I qualified...
I didn't even know what type of interest rates there were and how those affected my debt overall
When I contacted United Settlement, I didn't even know what type of interest rates there were and how those affected my debt overall. So, when I went to go buy a new house, I was shocked to find out that...
Debt settlement is what we signed up for when we were interested in using United Settlement
Debt settlement is what we signed up for when we were interested in using United Settlement. We needed a company to negotiate on our behalf to help us reduce the total amount of debt we owed, and we were...
I had no idea that I could lower my credit card interest rates. But when I contacted United Settlement, they explained to me that I could negotiate my interest rates down lower along with my payoff balance....
If you have ever had an unmanageable amount of credit card debt
If you have ever had an unmanageable amount of credit card debt, you know how ridiculous it is to try to pay it off. In my situation, I did not want to wait until the last moment to get this debt under...
Medical debt is damaging to your long-term credit
Medical debt is damaging to your long-term credit. That is what we were dedicated to managing our debt as soon as we got our medical bills from an unexpected surgery that our insurance did not cover. I...
Finding a good alternative to business debt relief is far from easy
Finding a good alternative to business debt relief is far from easy. As a company, we have spent years trying to find a good solution to our business’ debt, because if we can get it out of the way we...
I had no clue that a debt consulting company could provide guidance
I had no clue that a debt consulting company could provide guidance and what type of loans you should take out. I was thrilled by the communication I had with United Settlement. They did not hesitate to...
Buying a new vehicle should not stress you out to the point that you cry every night to go to sleep
Buying a new vehicle should not stress you out to the point that you cry every night to go to sleep. But that was the point I was at before I contacted United Settlement. These guys were professionals at...
I knew I needed to file bankruptcy before I even contacted the team at United Settlement
I knew I needed to file bankruptcy before I even contacted the team at United Settlement. My biggest issue was how to file and also what type of bankruptcy I should file. A lot of people do not know that...
Who would have thought that auto loan debt can take such a toll on a family
Who would have thought that auto loan debt can take such a toll on a family? Well, we discovered how that could happen when our family bought two new vehicles. We thought we could afford the payments, but...
Why go bankrupt when you do not have to?
Why go bankrupt when you do not have to? That was my thinking when I decided to hire United Settlement. I wanted them to help me get out from underneath my credit card and auto loan debt. They were very...
Who knew that you could get credit card debt relief
Who knew that you could get credit card debt relief just by reaching out to a credit card consolidation company? I did not. But I had a friend recommend United Settlement to help me get through my debt...
We had a revolving credit card debt that just wouldn’t quit
We had a revolving credit card debt that just wouldn’t quit. This in turn made it difficult to try to buy a house. Our credit card debt literally held us back from moving forward in life. But our goal...
There comes a time when you realize you need help with your debt consolidation
There comes a time when you realize you need help with your debt consolidation. And that time came for me last year. I contacted United Settlement to help me manage my debt issues. They were friendly and...
Small business loan debt was crippling our company.
Small business loan debt was crippling our company. We have spent many years building our business, but we had to take out several loans to get through a slow period. Fortunately, those loans helped, but...
If you have ever run a business before, you know how quickly you can get into debt
If you have ever run a business before, you know how quickly you can get into debt. That’s right, you can be trying to live your best life and end up in a situation you cannot get yourself out of. That...
Our credit card interest rates were astronomical
Our credit card debt was not really that bad, but our credit card interest rates were astronomical, which meant we could not get out from under our debt as quickly as we would have liked. We used United...
I had no idea that I would qualify for business debt consolidation loans
I had no idea that I would qualify for business debt consolidation loans. But United Settlement walked me through what that process was like and gave me insight into how to manage my future debt so that...
The last thing I wanted to do is file for business bankruptcy
The last thing I wanted to do is file for business bankruptcy, but that was before I knew how common it was and how little it actually affected my personal credit. United Settlement informed me of that...