There is nothing to freak about if you have some business debt. Even established businesses rely on debts to keep the ball rolling. Borrowing money for your business does not always insinuate that your business is flat. Despite having the ability to pay outright, you borrow money to protect your working capital. Your business might grind to a halt if you block a large portion of it in a project or equipment, etc.

However, many entrepreneurs fail to calculate the projected profits, and eventually, they find themselves in the red. Of course, a pile of debt is equally bad for the progress of your business. Most of your profits will go towards the payments of the debt, which means you will be left with scanty working capital.

Business loans are exorbitant. If you make a default, you will be charged with high-interest penalties and late payment fees. It will quickly add up the debt. As time passes by, you will find it all the more difficult to keep up with payments.

Business debt is a threat to the growth of your business. You should try to nip it into the bud sooner rather than later. Consolidating seems to be the best way when you are juggling between multiple debt payments.

Ways to consolidate your outstanding business loans

Consolidation is a good way to deal with your business debt. Because it will turn all of your outstanding loans into one new loan, you will have to make payments towards the new debt. Here are the ways to consolidate your outstanding business loans:

• Consider a business consolidation loan

As you can take out a new personal loan to consolidate your other loans, you can apply for a business consolidation loan to get rid of your outstanding business debts. Bear in mind that personal loans cannot be used to pay business debts, and hence, you will have to choose a lender who provides business consolidation loans.

Business debt consolidation loans are generally worth the size of your outstanding debts, so you can use that money to repay your current debts in fell one swoop. This means you will be left with the same amount of money to repay, but you will be making payments for fixed monthly instalments. It seems easy to qualify for these loans, but the devil is in the detail.

• You may be able to borrow money worth the outstanding amount only if your lender believes that you can repay the debt on time.
• Along with your repaying capacity, your lender will peruse your credit report. A lower credit rating means straightaway rejection. You should try to consider using consolidation loans for your business debts before missing any payment.
• A few lenders may sign off on your application despite a bad credit rating, but they will charge very high interest rates.

While using business consolidation loans, make sure that you do not make a decision simply based on interest rates you are charged with. You will have to look over your whole of your financial situation. Make sure you can pay off the debt even if your business is turned upside down.

• Consider refinancing or restructuring

It is hard to accurately prognosticate your business situation. Even though it seems to be flourishing, later on, you may find your business struggling to hit the ground running. Of course, you will find it harder to pay off your business debts on time. Lenders want their money back on time, and therefore, they are supposed to help you by proposing a different repayment plan. If the current one does not suit you, that’s fine. This is called restructuring of your loan.

You will have to contact your lender and tell them about your true financial condition. After a perusal check of your business condition, they will decide to revise your current repayment plan. Normally, it involves deferred payments and reduced payments. Do not expect that your lender will completely revise your interest rates.

Deferred payments will help you freeze payments for a short period of time, but interest will keep accruing, which means you will have to pay back the whole sum as soon as the time period expires. If you choose reduced payments, it will help you make monthly payments easier, but interest will keep accruing on the unpaid balance.

Restructuring of loans may seem to be a good idea at the time when your business is struggling with payments, but over time you will find yourself paying a lot more money on interest. You can consider refinancing your business loan. It will help you take out a new business loan at lower interest rates, provided you never made a default.

You must have a good credit rating to get better interest rates. With refinance, you will be able to extend the repayment term, too, which will reduce the size of monthly instalments. However, you will have paid more interest in total by the end of the term.

• Improve your financial condition

It is possible that consolidation is not a good choice for you. If so, you should try to cut back on your expenses and ensure that there is enough cash flow to meet your business expenses including debt payments. Here is what you can do:

• Look over your business expenses. Try to cut back on inessential expenses.
• If possible, ask your employees to work from home. It will help you save on electricity, building maintenance and other related expenses. The money you save by cutting back on these expenses can be utilized towards debt payments.
• You should stop hiring new people and make do with your current staff. Your employees should be able to multi-task.
• Make sure you do not borrow more money because it will add to your problems. However, if you need a very small amount of money, you can try using business loans with no credit checks.

The pros and cons

Here are the pros and cons of debt consolidation loans:

• It will help you make debt payments faster.
• It helps simplify budgeting.
• You will end up paying more money over time.
• Approval is hard if your credit score is not up to snuff.
• It does not guarantee your cash-flow problems will be solved.

The final word

Business debts can be difficult to tackle. Consolidation loans are the best option as long as your credit score is good; however, you may still face cash-flow problems.