Small Business Debt Consolidation Loans | How it Works?

It is a common circumstance where all business owners need to borrow money or take out loans from different places. All businesses, whether big or small scale, require money to be invested at the right time, to grow the business. 

So, they apply for a Business Debt Consolidation Loans from public or private banks like NBFCs to achieve certain business goals. There are even money lending institutions that aid small scale business owners with small amounts of loans. One can even borrow money from individual money lenders who give out loans at reasonable rates of interest. Thus, debt consolidation loans for small business help in the startup process.

Who can take a Business Debt Consolidation Loan?

If you apply for a business debt consolidation loan, it will not necessarily be always granted. Not everyone qualifies for a business debt consolidation loan. Especially, those loans are funded by the state or the government. It depends on how good your credit score.

Only after a thorough background check of your business, you will be granted a consolidation loan. And sometimes, depending on your credit score the grant will be decided. You will need valid proofs of your business and sometimes may even need legal documents to support the case. 

Why take a Debt Consolidate Loan?

If you are a small scale business owner who has been dealing with multiple lenders and investors, it might be a good idea to seek loan consolidation. If you qualify, then it is possible that you can combine all of your business debts. Thus, turning it into one single payment that you can pay off later.

Taking a loan to consolidate your business debts can help you in a number of ways :

  • It buys you more time to pay off your loans.
  • It can help you to pay off the loans that need to be paid off immediately.
  • In some cases, the total interest rate to be paid for one debt consolidation loan adds up to be comparatively less. Thus, can be noted when brought in comparison to all the individual loan interest rates. 
  • It ends up saving a considerable amount of your money that you can use for other purposes.
  • If you have a poor credit score, a debt consolidation loan can help you improve it. So, if you are able to make timely payments to pay off your consolidation, then it will reflect on your credit score.

How do the Small Business Debt Consolidation Loans work?

Many think that Loan consolidation is a better way to manage your business finances than refinancing. But, it may be hard to decide which one to opt for. Since there are both pros and cons of refinancing :

  • Pros being that refinancing lowers the rate of interest for the loans. So, there is a possibility of reduced fees and more flexible repayment terms.
  • Cons for refinancing being that you still have to deal with multiple lenders. Also, sometimes there is a possibility of the fees exceeding your overall cost (Even if the rates of interest look lower).

But, with consolidating your debts, you are able to gather all your loans and turn it into one large loan. So, you do not have to deal with each loan separately. You can easily pay off your multiple loans with a large chunk of loan money and reduce the overall cost. Also, your credit score will improve if you keep making the payments based on the fixed time period.

Now, it might so happen that you can end up paying more for the debt consolidation loan. But that totally depends on the interest rates and repayment terms. It might also depend on how long you take to make the repayment. So, it is obvious that the longer the time you take to pay off your debt consolidation loan, the more it will end up costing you.

  • Pros for Debt Consolidation Loan: It turns multiple debts into one single debt. Thus, making timely payments can help improve credit scores. 
  • Cons for Debt Consolidation Loans: It can be hard to consolidate your loans if you have a lot of high-interest loans from multiple sources.  

Advantages of Small Business Debt Consolidation Loans

Consolidating your credits help to reduce the total cost of your loans (especially when it comes to business loans). Although you end up paying a little more in the long term, your monthly due payments reduce enough to help you to pay them. The interest rates tend to be quite high for credit cards. If you miss out on your payments, then it can simply increase the card count.

When you have too many loans taken from multiple places, it can be very difficult to decide which one to pay first. But, when you consolidate all of the debt with a business loan, you only have to deal with one single creditor. This is one of the main advantages of taking a business debt consolidation loan. It makes it so easier and so much more convenient to make timely payments. 

Another advantage of taking a business loan is that you are able to make timely payments to the creditors. This reflects on your credit score and it naturally improves to qualify you for future loans.

In fact, simultaneously if you keep paying your EMIs of your business loan on timely periods, your credit score will rise even further. Some business loans charge reasonable rates of interest, making it affordable for you to keep paying the EMIs.

And lastly, business loans are easily accessible and are mostly granted. They require very less paperwork, and it does not matter even if your credit score is poor. Many NBFC’s will approve your loan in less than 24 hours.

With all these advantages, it will only end up costing you a little more money than the normal costs. However, the benefits you get for it are totally worth paying the extra cost.