Business Consolidation Loans: How They Work And Should You Consider One?
Running a business can be extremely stressful, but especially when you’re also paying off loans. Many business owners take out loans to help pay off debt or cover certain expenses, and before you know it, you have 3 or 4 different loans you’re paying off. This is a case where it might be useful to consolidate your loans into a single loan.
A business consolidation loan is when you take out a single loan to help pay off all of your other loans, leaving you with a single monthly loan payment. This helps to streamline your payments and make it easier and less stressful for you and your business. If you have multiple loan payments, then yes you should consider a business consolidation loan.
When doing this, you’ll want to make sure your single loan amount is enough to cover 100% of the rest of your loans, to ensure you are only working with one loan payment. It’s another type of investment, but one that will give you a little more peace of mind. Continue reading to see how they work and if consolidating loans makes sense for you.
How Do They Work?
Every lender will have their own requirements and vary slightly, but there are a few things that most will consistently look at, as well as steps they will go through:
- Credit score – most lenders will want to see a 650 or higher, but if they are a bad-credit lender, then they might approve one in the upper 500s.
- Consultation – this sounds intuitive, but they need to get a feel for who they are loaning money to. Do you have the wherewithal to continue making the business profitable as well as pay off the new consolidated loan?
- Submit financial documents – you will need to show future sales projections, 2-3 years of personal and business tax returns, list of all debt and assets, and likely a full balance sheet.
- Review – once all the above has been completed, the lender will then review and make a decision after doing their due diligence.
- Make a deal (or not) – the lender will eventually decide if they will approve you for the desired loan or not.
It may sound like a lot, but you should ideally have most of these things at hand and ready to make for an easy submission and approval.
Is a Consolidation Loan Right for Me?
Although we cannot give a definitive answer, it depends on your current situation. If you have three, four, five loans you’re paying at once, then it might make sense to go down to just one. Make it easy on yourself, pay off old debt and just deal with a single lender.
If you only have two and are comfortable with that, and perhaps one will be paid off soon, then it might not be worth the time and effort to get a consolidation loan.
Conclusion
Loans and debt can be scary, but running a business is almost always going to contain a little of each at some point or another. When considering more loans and debt, weigh the pros and cons, will it help you and the business (in tangible or intangible ways), and is it good strategy? Ask yourself a few questions, be honest with your answers, and make the decision that is best for the longevity of the company.