Loan

Advantages and Disadvantages of a Small Business Debt Consolidation Loan

Small businesses and large corporations alike are known to have a tough time with loan repayments. Even though there seems to be nothing fundamentally wrong in taking out a loan or seeking suitable financial assistance for helping your business grow, things could get out of hand if you fail to make the repayments. You could even lose your dream company, you had really worked hard to launch and build.  If your business is going through a bad phase marked by high costs and low profits, you may consider a debt consolidation loan as a viable and most effective alternative to bankruptcy.

Debt Consolidation Is the Best Solution

Used by businesses and individuals alike, debt consolidation is supposed to combine multiple loans and other credit lines all into one single loan with a relatively lower rate of interest. Simply put, the debtor would be taking out a new loan for repaying the previous loans. Debt consolidation comes with a number of advantages and some disadvantages for businesses, especially small business owners.

Debt Consolidation Advantages

Let us now explore some of the top reasons for opting for debt consolidation.

Only One Creditor

One of the key advantages of debt consolidation is the fact that you would be dealing with only one creditor. Debt consolidation involves an outside company that would be creating a payment plan depending on your debts. The company would further distribute the funds to different lenders as required.

For small businesses that have numerous lines of credit, things could become slightly distressing to handle multiple bills every month. Debt consolidation is surely the best way of stopping all those harassing calls from the collection agents. With debt consolidation, you would never miss a payment.

Lower Interest Rate

In these times of financial crisis, nobody would be willingly paying more than what is absolutely necessary. One of the greatest advantages of debt consolidation would be the definitely lower rate of interest across all loans and credit lines. If you are consolidating your debts, then you would be taking out a fresh new loan with the intention of paying off the previous ones. Debt consolidation could be effective in stopping you from defaulting on your loans every month.

Debt Consolidation Disadvantage

Even though debt consolidation looks like the best solution for catering to your debt repayment issues, business owners must understand that the process has its drawbacks.

Long-Drawn Payments

Lowering your monthly payments, as well as, your interest rates is generally viewed as a positive, but it is very common to see the loan terms being extended when you resort to debt consolidation. A common claim from consolidation firms is that they are negotiating improved interest rates, while the truth is that they are only stretching the payment period. You must be informed that your monthly payments will likely be smaller and more manageable but your interest amounts will likely be significantly higher in the long run.

Conclusion

Debt consolidation must be regarded as an effective treatment but it is certainly not a cure. It is quite like a temporary solution to a permanent issue. Debt consolidation has the capacity to lower your payments every month. It would be changing your rate of interest too.