Do you have multiple business loans? Business debt consolidation might be a way to help you. Delancey Street provides business debt consolidation loans to help you streamline your debt repayment into more a manageable payment at a lower interest rate.
Business debt consolidation can make managing your business debt easier. If you have high interest loans, like merchant cash advances, lines of credit, or credit cards, then a business debt consolidation loan might be the answer.
Is a business debt consolidation loan the right move for your business? How does it work? Keep reading to learn more. We answer all your questions in this incredibly detailed article.
How does small business debt consolidation work?
Consolidating small business debt isn’t much different from consolidating other forms of debt. The process can be simplified into the following few steps:
- Decide which business debts you want to consolidate
- Apply for a new business loan with Delancey Street, and use the proceeds to pay off the loans you want to consolidate
- Going forward, you make payments on that new loan, according to the terms of the agreement
Small business debt consolidation vs. Small business debt refinancing
Business debt consolidation and debt refinancing often get grouped together, but they aren’t really identical at all. When you do a business debt consolidation loan, you’re getting a new loan to pay off 2 or more loans. The interest rate you may for this singular business debt consolidation loan may, or may not, be more than the average rate you’re paying for your current loans.
When you refinance a small business loan, it involves lowering the interest rate on the existing business debt. This is typically by getting a new business loan. Lowering your interest rate can result in lower payments. The main objective of small business debt is combining multiple payments into one, in order to make your repayment smother. If you’re somehow able to get a reduced rate, or payment – then this is just “icing.”
Does a business debt consolidation loan actually make sense for your business?
It may, or may not, be the right time to consolidate your business debt. It’s possible to consolidate all of your debt into one monthly payment. Many business owners have several merchant cash advances, in addition to having term loans with traditional lender. When you apply for a business consolidation loan – you can expect a reduced rate, longer repayment terms, and a better repayment experience.
Typically business debt consolidation will depend on factors like your personal credit score, business credit score, your personal finances, your business finances, etc. Let’s look at the pros of small business debt consolidation and the cons of small business debt consolidation.
Get a lower interest rate on a small business debt consolidation loan
The higher your rate, the more you’ll pay in interest over the life of the debt. If you can lower your interest rate by consolidating your business debt, this can help you save immense money. When you get a lower rate, you can also lower your monthly payment. You can take those savings, and then put them into your business and increase your daily cashflow. Bottom line, this means more everyday expenses are covered, and you have more funds to grow your projects.
Time is on your side with a debt consolidation loan
Time is one of the most valuable resources a business owner has. With a business debt consolidation loan, you can eliminate the stress of multiple bills – with approaching deadlines, and interest rates. Business debt consolidation gives you more time.
Your credit might improve
It’s no secret, business credit score are based on payment history. When lenders see you have a positive track record of paying debts on time, they are more likely to lend to you. The likelihood of missing a payment decreases when you have a business debt consolidation loan in place – since you now have only one payment to worry about.
Here are some cons
Lower rate isn’t guaranteed
The interest rate you pay for a business debt consolidation loan depend on several factors, like creditworthiness, how much you’re borrowing, your history, and the type of loan and lender. So, while you might be able to combine multiple loans into one payment – the rate may not be lower.
Your new consolidation loan payoff could be more expensive
When you consolidate your existing loans into a business debt consolidation loan – it’s likely you’re going to increase the term. By increasing the term, you’re able to get a lower payment – but it also means you’re now paying interest over a longer period of time. That extra term comes at a price! So, to say the obvious – your total payback will be higher. You may end up paying more in interest charges over the long term compared to what you may have paid with your existing loans.
What are your options for a business debt consolidation loan?
There’s several ways available to you in order to consolidate your small business debt. Learning the differences can help you narrow down which type of solution is right for you.
Apply for a bank loan
Your bank is the first place to look. They can offer business debt consolidation loans at very competitive interest rates, with terms that can stretch up to 10 years. If you’ve maintained a good business, have good credit, and good repayment history, and have an overall good relationship with your personal banker, then you may qualify for a bank loan with discounts, reduced fees, and favorable terms, on a small business debt consolidation loan. Bank loans are notoriously difficult to qualify for. Banks prefer to lend to businesses that have years of history under their belts, solid revenue, and good credit scores.
Try for an SBA loan
The SBA has several loan programs, including 7(a) loans, which can be used for debt consolidation. The loan allows you to borrow up to $5 million for small business funding. Like traditional bank loans, SBA loans have competitive rates. They’re geared towards established businesses that have strong revenue, and strong credit.
Speak to Delancey Street
We can offer business consolidation loans with competitive rates and terms. Depending on your situation, and whether you have collateral – like real estate, we can offer small business debt consolidation loans with terms extending up to 2-3 years.
How to consolidate business debt via a debt consolidation loan
First, have some goals for your consolidation. What are you trying to accomplish? Lower payment? Better rates? Fewer bills? More cash flow? Knowing the motivation can help you pick the right loan offer. It’s important to add up your business loans, and review their existing rates, etc, and take note of what you owe for each loan over what term. Once you do that, you should decide which small business loans to consolidate. Knowing your goals comes in handy, so you can decide which loans to consolidate, and which loans to keep in place. If you need more cash on hand, you may want to consolidate your loans with the shortest terms, and biggest daily payments. You should also look for prepayment penalties. Before you pick any business debt consolidation option, read the fine print in your existing lender agreement. Many lenders have a prepayment penalty in place for paying off the loan early. You’ll need to factor this into your loan.
Once you decide you’re ready for small business consolidation loan, think about which lending option makes sense for you. If you have great credit and financials, then your bank might give you some great terms. If you have less than stellar credit, then an online lender might be the one you want to speak to. Once you identify a few lenders, compare the terms. Look for the APR, loan fees, and repayment terms.
Before you apply for a business consolidation loan, get your documents in order. Be prepared to offer tax returns, bank statements, P&L, AR and more. Having this information ready can speed up the process.