Debt Consolidation for Small Businesses

Written by: Alice Robinson

From the moment you make the decision to financially dedicate yourself to starting a business, you start pulling in debt. Small loans here and there to fund different bits and pieces of the business; they may start off seemingly manageable but often you can find yourself suddenly overwhelmed in debt repayments. Usually there are two immediate solutions that come to mind: reconciliation and consolidation. Let’s take a look at consolidation.

Definition:

Keeping it straightforward,  debt consolidation is the process of taking out one big loan and using that loan money to repay all small loans. This means that you only have one set of loan repayments to worry about, generally a longer term loan with lower interest. This will make your monthly bookkeeping much easier to maintain.

Things to think about:

Consolidation will not necessarily make all of your debt problems go away. Before taking the plunge you need to consider the total value of your current debts, the interest rates on those debts, the loan repayment periods and your monthly repayment for each loan. It is a good idea to do some comparisons using online debt calculators to make sure you are putting yourself in the best position you can regarding which debts to consolidate first and what type of loan you will be taking out to perform the consolidation. Generally if you have a lot of short term, high interest loans, it is a good idea to get them out of the way first; you do not have to consolidate all loans in one hit. Another consideration to make is default risk and credit rating. Defaulting on one loan will drop your credit rating less than defaulting on multiple smaller loans but the result of a larger default may be more than you can handle at this point in time, especially if you have assets up as collateral. Never make changes like this before you know what impact it will have and what risk you will present yourself with.

If you are considering loan consolidation, make sure you seek some professional advice beforehand or at the very least make use of some of the online loan repayment calculators to help you compare the figures. Loan consolidation can be your saving grace but it can also be risky. Be careful, take your time and do the calculations first.

If you would like to book a consultation with one of our business advisers or accountants to discuss the issue of debt consolidation or even to give you some general guidance, go to the Enquire & Book page or call 3812 1420.


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