The basic idea behind business loan consolidation is the same as it is for personal loan consolidation. The main point is to combine debts, lower the interest rate and give one payment to make instead of several. It can be a good idea for many small businesses, but it is not right in every situation. Here are 10 things to consider when you are thinking about getting a business loan consolidation.
1. Just because you can does not mean you should. Just because you qualify, that is not reason to jump in head first. You still need to make sure it is the best option for your situation.
2. Buyer beware. You need to pay careful attention to the conditions and costs. Some lenders end up charging you more than what you would have paid if you had not consolidated.
3. Consolidation is not a complete fix. The main reason to consolidate is to save money and get out of a jam. Try to avoid accumulating new debt as you go forward. You may have to change some business practices.
4. You can get creditors off your back. A consolidation does allow you to start over on your credit, old ones are paid off, and now you start fresh. It can stop the old creditors from calling.
5. You can improve your cash flow in most cases. Often these loans you have are at a high interest rate. You can get a lower interest rate as you consolidate your payments into one.
6. Watch out for hidden charges. Some loans have a fee for paying early, which can cause a problem. The consolidation lender should take care of this, but if you are going to have to pay a lot of early payoff fees, you might end up not saving any money.
7. A consolidation should increase your cash flow. If you run the numbers, and it does not do this, consolidation is not likely a good idea for your situation.
8. Know the difference between a secured and unsecured loan. A secured loan has collateral, such as your home or building tied to the loan, while unsecured does not. Weigh whether you want to risk your house by putting it up for collateral.
9. The government’s Small Business Administration has many loan options, as well as many advisors that help small businesses.
10. These loans can be very complicated. it is good to a financial advisor with no economic interest in the loan available to help you negotiate the decisions.
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