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Business Debt Consolidation Tips for Start-Ups

Any up-and-coming small business owner knows that the business finances are precarious at best for the first few months (or years). Taking on multiple loans to begin operations may sometimes be necessary, but juggling several lenders can leave small business owners struggling to stay afloat. It could impact the businesses' cash flow and lead to a debt load that's difficult to maintain.

This is why from the get-go, it's important to ensure that any business debt won't pile up—but this isn't always easy. For small business owners who need really need to take out more than one business loan, considering business debt consolidation loans may be a good idea.

What Is Debt Consolidation?

Business debt consolidation happens when you take out a new loan to pay off all of your other existing business loans. When this strategy is applied, you don't have to juggle multiple loans from different lenders. Instead, you focus on a single loan to address all your small business debt.

By managing a singular loan and a single repayment schedule, you'll ease some of your burdens and be able to focus on the overall welfare of your small business.

Ways To Consolidate Your Business Debt

Borrow From Friends and Family

One way to business owners can consolidate their business loans is to approach friends and family to loan them the money. All you have to do is discuss the loan term with your family or friend, use that money to pay off all your debt in full, then, work your way to pay off your loved one with a defined payment schedule.

Debt solutions like this depend on whether you have access to someone with enough money to spare. You also have to put pride and ego aside to approach this person, so you have to consider that. In this situation, remember to be honest with your family member, try to put everything in writing, and discuss your payback plan, as well as any interest rates.

Consolidate Business Debt with Personal Loans

You could also consider taking out a business debt consolidation loan to help you get out of the weeds. Usually, this is done by getting a personal loan from a bank or a credit union. With a bank loan, you make an application for a certain amount of money and pay it back in installments with terms ranging from one to five years.

A personal loan is usually unsecured, which does not require any collateral. You can consider this your best option if the lender can provide a lower interest rate than what you are handling with your current debts.

Form A Debt Management Plan From Credit Counselors

If you want to get better loan terms for your business debts, you can work with credit counselors and design a debt management plan. With a plan like this, you can get a lower monthly payment and lower interest rates. However, debt management plans require cutting up business credit cards, sticking strictly to a budget, and paying off the entire debt within three to five years.

Getting a debt management program still requires passing an assessment. It takes numerous factors into consideration, including income, cash flow, and ability to manage business expenses. Additionally, one of the advantages of debt management is that it does not require high credit scores.

Get An SBA 7(a) Loan

If you feel like you will not qualify for a small business loan through a bank, an SBA 7(a) loan might be your best option for consolidating business debt. These loans are granted by the Small Business Administration and they can amount to up to 5 million dollars.

SBA 7(a) loans can have loan terms as long as 25 years and the interest rate can be quite low. However, your application must satisfy the SBA guidelines.

Use Peer-to-Peer Loans

A rising technology in the financial field is Peer-to-Peer Lending (P2P). This method matches borrowers to lenders in a single platform, and everything is done online. One of the main reasons why people apply for P2P loans is for debt consolidation.

The most enticing aspect of P2P is that you can do it at the comforts of your home. There will be not much hassle with a long process and there will be no lending institution serving as a middleman for the process.

What Is The Best Strategy for Small Business Debt Consolidation?

There are numerous ways to work your way to debt repayment. For all these options there come different business debt consolidation pros and cons. At the end of the day, it all falls under your particular financial conditions.

Given the many business debt consolidation options to choose from, remember to consider your unique situation before making a decision. Look at their offers on financial management consultation, debt consolidation fees, the interest rate, the repayment terms, and the actual payment schedules.

At the end of the day, think about what the program will mean for your small business and how it will help you generate more revenue.

Frequently Asked Questions

What is the smartest way to consolidate debt?

Consolidating your credit card debt is the smartest way to start saving money. When you get a debt consolidation loan, all of your existing balances are combined into one loan with a lower interest rate. This means that each month you'll be paying less in fees and will have the potential for lowering monthly payments which can help speed up repayment!

How can a business get out of debt?

The seven steps to getting rid of your business debt start with assessing and reworking your budget, reducing expenses, paying with cash temporarily, then communicating with creditors and lenders about the situation.

Then, create a "target debt" or stack repayment plan in order to get out from under it as quickly as possible; try to increase your income so you can afford more monthly payments or hire a company that specializes in paying down debts.

What are the risks of debt consolidation?

Debt consolidation comes with its own set of risks, such as credit score damage, fees, or the possibility of losing collateral.

Read more about debt consolidation with this guide from AnyCredit!

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