Debt consolidation for small businesses involves a plan that allows for a positive outcome for both the business and its creditors.
Similar to debt consolidation programs that work with individuals, small business debt consolidation focuses on a plan that allows the business to satisfy its creditors without creating further problems. One way to begin debt consolidation for a small business is to use a company that specializes in debt management. This company negotiates with the creditors of the business to secure a more affordable payment option.
Another way to move toward small business debt consolidation is to work with a lender to secure a loan that pays off all of the financial obligations of the business. In exchange, the lender will provide the business with a repayment plan that allows the business to make one payment per month until the debt is paid in full. In many cases, the lender will send payments to each creditor on behalf of the business.
Advantages Of A Small Business Debt Consolidation Loan Plan
There are several advantages that are associated with a lending plan for small business debt consolidation. Because all of the current vendors to the business are paid in full, the business is no longer accruing interest on any outstanding balances.
If the business can secure a lower interest rate over all, the small business will save money over the long-term. In addition, having balances that are paid-in-full reflects positively on the business.
Disadvantages Of A Small Business Debt Consolidation Loan Plan
There are situations in which a small business debt consolidation plan may not advisable. If the interest rate paid to the vendors carries a low interest rate, the small business may end up paying more, depending on the rate of the loan.
In addition to losing money to interest rates, any new balances accrued with the vendor pose a risk of creating additional financial hardship for the company.
Other Small Business Debt Consolidation Options
In addition to working with a lender to consolidate small business debt into one payment, there are other options that may be attractive to business owners, such as business debt management.
In a business debt management relationship, a third party works as a mediator between the small business and its creditors. The mediator seeks to find repayment solutions that may stop interest from accruing, or find a repayment plan that the business can manage more easily. This approach is helpful in buying time for the small business to reorganize or generate additional income. A third party mediator can often help the small business restructure its budget into a more realistic financial plan.
Points To Consider For Small Business Debt Consolidation
Whenever a small business is looking to reduce or consolidate its debts with a third party, it’s important to consider other financial implications that may not be visible outright. Hiring a third party to negotiate or mediate new financial terms comes with an expense all of its own. Some examples of those debt management fees include processing fees or account management fees. When considering a small business debt management solution, it’s important that the total fees be weighed against the total benefit of the debt reduction.
There is never one right solution to a specific financial situation. While some plans may provide immediate financial relief, it is crucial that each small business look to the future and how that plan may impact the business in the long-term.