Business Debt Consolidation : One of the main reasons why an astonishing 70% of new businesses don’t see their tenth year is because they run out of cash. Small businesses find it very difficult to find the money they need for their operations and typically the principal sources of funding are credit cards and personal loans, both known for the very steep rates of interest they charge. Most entrepreneurs make use of as many credit cards as they can get but increasingly find themselves getting bogged down trying to remember the due dates, and invariably missing some of them. The situation can even get so bad that the cash flow of the business does not suffice to pay for operational expenses let alone the monthly expenses and business owners can find the going tougher by the day with card companies and their collection agencies paying calls more frequently. The problem of high rates of interest is not something that affects only new businesses. It is something that every business that has availed of high-interest credit worries about because it can seriously drain precious resources and affect profitability and valuations.
What Business Owners Should Do to Tackle Debt
When it becomes increasingly clear that the high level of debt and its interest burden is affecting the business prospects negatively, you should take stock of their financial situation on an urgent basis. You should find out why your business is failing to generate sufficient cash and where all the cash is going. A detailed cash flow statement should reveal all the details. If you have a number of credit card debts and other loans, you should make a list with all the details like the principal amount outstanding, the interest accrued but unpaid, the rate of interest and the number of months left. While you should take urgent steps to stop the business from bleeding by analyzing all the expenses and curtailing all but the most essential ones, you should also try to find out how to reduce your interest burden and address the problem of adequate monitoring of debts.
Credit Counseling May Help You to Get Back on Track
According to Classimax, if you feel that your own efforts are not going to be satisfactory, you should look at the possibility of getting credit counseling from professionals, preferably non-profit organizations. These organizations have credit counselors who will discuss your financial situation and assist you to develop customized plans to address the problem areas. Typically, credit counseling will benefit you with impartial advice on money and debt management, advise you on budgeting techniques, offer your financial management materials and workshops and even organize a debt management plan.
A typical debt management plan does not envisage any reduction in the amount of the debt but rather attempts to lower the monthly due by persuading the creditors to extend the repayment period, lower the rates of interest, and forgive some of the fees and penalties. Credit counseling is typically seen as a preliminary step to debt consolidation from a private lender like Nationaldebtrelief that offers a second life to businesses struggling under the burden of interest expense.
What Is Debt Consolidation and How Does It Help?
As a concept, debt consolidation is extremely simple. It is a process by which multiple debts taken on by the business are repaid with the help of a new loan that is the sum of all the loans. No reduction of the loan amount is envisaged; however, one of the most important benefits of the exercise is that the entrepreneur is left with only a single loan to monitor and repay once a month. What this means is that you are far less likely to miss out on the monthly payment and attract late payment charges and penal rates of interest that are typical of the credit card companies.
Further, if you have a good credit score, you will be able to get the debt consolidation loan at an interest rate that is substantially lower than the typical APR of credit cards thus allowing a significant saving on the interest outgo. When you embark on a debt consolidation exercise, you can also negotiate with the lender of the consolidation loan to allow you to repay the loan over a longer period. The advantage is that this lowers the amount of the monthly repayment making it more affordable and feasible on the existing cash flow of the business. Another attractive feature of debt consolidation is that the process actually helps you to improve your credit score over time. This is because all your credit card debt is extinguished and you have the minimum credit utilization ratio. Apart from that you are no longer missing out on the monthly payments so there is no negative impact on your credit score.
While banks and credit unions have low rates of interest, typically they are not too keen on lending for such purposes and their paperwork and processing is quite cumbersome and slow. Most debt consolidation loans for small businesses are provided by private lenders, however, it can be a good idea to shop around for the best rates as the competition for custom is steep and there are no hard and fast rules regarding the rate of interest that your credit score will be eligible for. All lenders have their own risk profiles and lending practices so it will not be unusual to receive offers that are significantly different. Whether you are able to succeed in consolidating your debts and benefit by it really depends on your ability to find a reliable lender who will charge a reasonable rate of interest, not rip off you with unnecessary charges and fees and also help you with advice that works in your favor.
Running up debt when operating a small business is inevitable, however, as a smart entrepreneur, you should be able to leverage it to the maximum without getting smothered by it due to the repayment burden. Debt consolidation can work very well to reduce the cost of debt and that task of monitoring multiple debts; however, to get the maximum benefit, you should have a good credit score. Read more articles at Storify News