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When and How to Consolidate Business Debt

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    Consolidating business debt can be a convenience for some companies, but for others, it could breathe life into a struggling venture. Cash flow in a business ebbs and flows, and that means lucrative opportunities can sometimes disappear without the funding to pursue them. Debt is best kept to a minimum, but getting a loan can help a business expand, get new products, and cover temporary cash flow concerns when capital is most needed. Here are a few things to keep in mind:
    • Small businesses often need more than one loan , so it can be helpful to consolidate when you have several. 
    • The cost of new equipment and upgrades alone can often surpass several thousand dollars, necessitating a separate loan to make the purchase. 
    • Business taxes also come with some unexpected expenses sometimes. 
    • Loans can be a lifesaver for a business, but things can get tricky and even cumbersome when you have more than one. 
    • There are many reasons a business may have problems repaying a loan. Sometimes the return doesn’t match the acquired financing, for instance. 
    • Multiple loans with varying due dates and requirements can be hard to pay back on time. 
    • Loans with high interest rates are even harder to pay back.
    Business debt consolidation can address several of the above situations by restructuring debt into a single low-interest payment. Business debt consolidation means taking out one loan, hopefully with a lower interest rate, to pay off several existing loans. This guide will walk you through everything you need to know about consolidating business debt and how it can help your business.
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    The Basics of Consolidating Business Debt

    Consolidating business debt is an easy concept, but some aspects can be challenging to understand. Small business owners are sometimes under the misconception that consolidation can solve all their problems, but the process isn’t without challenges. Here are a few things to think about:
    Many people group consolidation and refinancing together because both pertain to business debt. Business debt consolidation deals with several loans being paid off by one, preferably at a lower interest rate. Refinancing can occur with one loan or many, but the main goal is to get a lower interest rate, which you may not get with consolidation.
    Many first-time small business owners don’t understand that there are a few options for financing a business debt consolidation. Traditional bank loans are the most well-known but not always the best choice. The Small Business Association also offers a variety of loans, and there is a growing array of alternative lenders as well. Research all your options to find out which has the best terms.
    Too many people believe business debt consolidation can rescue them from deeper issues. The process can help make some financial troubles easier, but it doesn’t erase them.
    Any small-business owner would be well-advised to consider why they want to make this move. A longer term or fewer payments to be made can be helpful, but if the new loan gives you a higher interest rate, it will probably do more harm than good. 
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    8 Factors You Must Consider During the Process

    Consolidating business debt can be a smart choice for your business, but it isn’t without risk. Always consider the pros and cons of every business debt consolidation loan before signing on the dotted line, such as:

    1. Ease of Management

    It is easier to manage one monthly payment as opposed to several. You have one due date and one payment amount to remember.

    2. Savings

    Moving many high-interest loans into one loan with a lower interest rate saves money in the long run. Lower interest rates should mean lower payments.

    3. Credit Boost

    You might see a credit boost after consolidating business loans, because payment history is a significant factor in business credit scores. Consolidating means you’ll only have one payment to keep up with and fewer chances to be late or miss one.

    4. Shop for the Best Loan Terms

    Searching for a business consolidation debt loan allows you to get the best interest rate and repayment terms possible. Look for something that works for you instead of being stuck with terms from one source.

    5. Interest Rates Don’t Always Change

    A business consolidation loan will lower your number of payments per month, but the interest rate may not go down or even stay the same. Interest rates are directly connected to factors such as the amount of the loan, creditworthiness, and business history. All those things have to be up to par to get a low interest rate.

    6. Extension of Terms

    Extending the terms of a loan can sound great at first. Stretching out payment over longer periods of time keeps more money in the business. It also keeps interest tacking onto the principle, forcing businesses to pay far more than they borrowed. Make sure extending the terms works for your business.

    7. Addressing the Real Issue

    Consumers don’t get into debt without reason. Neither do businesses. There is always a reason for debt. Emergency expenses can’t be foreseen and can quickly put a company in debt. Lack of common sense and spontaneous spending are signs of more significant issues that a business debt consolidation loan won’t fix.

    8. Don’t Get Sidetracked

    The most important thing to remember about business debt consolidation sounds obvious but must be stated: Pay off your existing debt. Business owners might take the large lump sum from the loan and use it elsewhere instead of paying off debt. This tactic never ends well and can land you in legal trouble, so be sure to pay your existing debt when you get a business consolidation loan.
    Knowledge is your ally when considering business debt consolidation. A firm understanding of all your options gives you a better chance at a consolidation loan that does everything you need.
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    How to Get Help From an Expert

    Business debt is a challenge for any company, and often taxes are the cause. Silver Tax Group has assembled a team with the knowledge and experience to keep your taxes – and your IRS hassles – to a minimum.

    Our tax attorneys are available 24/7 to find a customized solution to your tax issues. Contact us today for a free case evaluation or for answers to your tax problems.

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