Loans are a necessary tool for every business and are often a wise investment for companies seeking to take advantage of one-off opportunities. But after the highs of such opportunities are gone, you still need to keep track of everyday business operations. This requires businesses to have a constant stream of cash flow to keep up with wage demands and other operational needs. Several debts arise in the process and unknown to many, managing different types of loans is not an easy task. With this, you may find yourself looking into business debt consolidation. To stay up to date on what debt consolidation is all about, here are its pros and cons.
What Is Business Debt Consolidation?
Business debt consolidation refers to a type of loan that business owners take to pay off multiple types of debt. By going for debt consolidation, you can merge all existing debt into one loan in an instant. This type of loan is available to businesses at different levels, so whether you are a startup or a well-established company, you can equally benefit from this consolidation avenue. The benefits of such a business debt consolidation are immense, as detailed below.
Pros of Business Debt Consolidation Loans
1. Manageable Payments
Managing a business is a full-time responsibility and often requires you to be hands-on while supervising multiple undertakings. On the other hand, dealing with different loans also brings its share of work, from monitoring separate loan payments to tracking various interest schedules. Rather than have divided attention while catching up with each task, business debt consolidation allows you to have only one loan and better bookkeeping. Therefore, you can keep track of your loan schedule with ease through a single interest rate and only one repayment schedule.
2. Low-Interest Rates
Having a business debt consolidation means getting a loan that offers you relief from exorbitant interest rates. With low-interest rates, you get more savings, which allows you to cut back on your loan expenses. A single interest rate also means better monitoring for your loan creditor and your finance department. Due to this, you are less likely to default on your monthly payments, making it a win-win situation.
3. Better Cash Flow
Getting more loans may have been a good option for your short-term needs but not for your everyday cash flow management. As earlier mentioned, a business debt consolidation loan comes with low monthly interests. The result is reduced cash outflow, allowing you to keep more money in your business. More cash flow means you can take care of your daily business needs, such as payroll and supplier obligations.
Additionally, better cash flow will allow you to focus on growth opportunities rather than on your current cash woes. You can use the financial savings to expand to new territories and reach out to new clients for your future success.
4. Improved Credit Score
Having a good credit score requires you to keep a consistent debt repayment record, an element that can get tricky with multiple loans. But with a business debt consolidation, you only have one loan to focus on. A single loan gives you the benefit of managing your payments and sticking to deadlines, which builds your payment history. Your credit score improves as a result and will come in handy if you need other business loans of higher amounts.
Cons of a Business Debt Consolidation Loan
1. Low-Interest Rates Are Not Guaranteed
Business debt consolidation loan offers vary with each financing institution, with some only paying attention to increased funding and not on low-interest rates. Our team at LQD Business Finance is here to make sure your debt consolidation loan fits your needs and make sure that you will benefit from the consolidation in the long run.
LQD Finance will help you identify options to see if there are some with lower interest rates than your existing loans. It will help you achieve the reduced payments that you are after. However, if your interest only lies in getting consolidation loans with shorter repayment periods, you may have to settle for higher interest rates. Understand what works for you before signing up for business debt consolidation.
2. More Repayment Period
Getting a business debt consolidation loan will allow you to repay all existing debt, but with this, you also sign up for a new loan term. This comes with an extended repayment period that is often not bargained for. However, this should not be cause for concern, given the immense relief a business debt consolidation will offer. You get more time to sort your business affairs without the risk of your business collapsing. Rather than focusing on the increased pay period, focus on the ease of management that a single loan provides.
3. Debt Consolidation does not Solve Your Cash Problems
If you have multiple debts that slow down your business, it may be time to look into your internal cash flow needs. A business debt consolidation will only provide relief for a limited time, after which you are likely to find yourself in the same cash flow problem. After getting your business debt consolidation loan, allocate time for evaluating your financial needs. Compare your cash outflow versus your revenues. Here, identify areas with leaks and come up with ways to minimize your expenses. Let your business debt consolidation serve as a stepping stone to better business resolutions.
Consolidate Your Business Debt with LQD Business Finance
Business debt consolidation can be a great move for your business. Consider consolidating your business debt into one loan to enjoy lower interest rates, better cash flow, and simplified payments.
LQD Business Finance prides itself on offering flexible and custom-built solutions that will suit your company’s needs. Our unique financing algorithms will match you with the most suitable funding option in as little as 30 days. Apply now for a business debt consolidation loan with LQD Business Finance today!