Large corporations and small businesses alike struggle with loan repayments and debt consolidation. And while there’s nothing wrong with seeking financing to grow your business, failing to repay those debts could result in you losing the company you worked so hard to build. If you’re struggling with low profits and high costs, debt consolidation could be a viable alternative to defaulting on your loans.
Used by individuals and businesses alike, debt consolidation combines various loans and credit lines into single principal and payment amounts, ideally with a lower interest rate. Structurally speaking, the debtor takes out a new loan to repay the money taken from previous loans. Debt consolidation offers both advantages and disadvantages for small business owners.
Here are some of the top reasons to consider debt consolidation.
One of the primary benefits of debt consolidation is that you only need to deal with one creditor instead of many. With debt consolidation, an outside company creates a payment plan based on your debts and disperses funds to the various lenders as needed.
For small businesses with several lines of credit, it can be stressful to receive multiple bills each month. Not only does consolidating loans cut down on those harassing phone calls, but it also ensures you don’t miss a payment and fall deeper into debt.
Lower Interest Rate
No one wants to pay more than necessary in interest on a loan. One of the benefits of debt consolidation is that you can potentially lower your interest rate for all loans and credit lines. If you choose to consolidate your debts, you will effectively take out a new loan for the purpose of repaying the old ones.
In many cases, the interest rate on the new loan is significantly lower than what you were paying previously. If you have been unable to pay your debts at the current rates, consolidation might stop you from having to default on loans each month.