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How to get a debt consolidation loan

Savvy business owners understand the power of a business debt consolidation loan, particularly when it comes to streamlining their finances and eliminating another “spinning plate” that they would have had to keep their eyes on while running a business today.

We live in the middle of the most competitive business environment that has ever existed. Everything you can do to condense and consolidate your focus will give you a competitive advantage in your business and your industry.

By pulling multiple loans through multiple lenders together into one “lump sum” the way you can with a business debt consolidation loan gives you a lot more control over your finances while managing fewer details on a month-to-month basis.

Regardless of the type of business consolidation loan, you move forward with (secured, unsecured, etc.) this is very much a short-term play that will have long-term ramifications that help you build and grow your business going forward.

In this quick guide we are going to show you how these kinds of loans work, the benefits and drawbacks they bring to the table, and which kinds of business owners are the perfect fit for this sort of financing package.

Breaking Down How Debt Consolidation Loans Work

Today’s overwhelmed entrepreneur should always be on the lookout for opportunities of leverage that let them condense, consolidate, and control their financial future as much as possible – and that’s exactly what these kinds of lending packages do.

Essentially taking all (or almost all) of the outstanding debts you have with a number of different lenders and lumping them into a single loan package – eliminating the multitude of interest rates, repayment terms and timelines, fees, etc. that those individual loans brought to the table as well – a business debt consolidation loan keeps things simple and straightforward.

All of those debts are consolidated down, all of those individual lenders are eliminated completely, and instead, you move forward with a single loan from a single lender with a predictable interest rate and repayment schedule that isn’t going to monopolize your time or focus every month.

No longer will you have to worry about when a half a dozen or more individual bills are due, which lenders have to be paid and how much on a specific day, or struggle to figure out just how much you are paying in fees and interest when the facts and figures across all of your loans are so unique.

You will instead gain complete control over your cash flow and your finances in a way that just isn’t possible otherwise.

Highlighting the Main Types of Debt Consolidation Loans

There is a multitude of debt consolidation packages you could choose to move forward with, some better suited to your specific needs than others. At the end of the day, you need to make sure that you are making a decision in the short term that will benefit your long-term financial standing, giving you the kind of leverage you need to compete and to thrive in today’s ultra competitive business environment.

Traditional Bank Loans

Legacy lending institutions like banks and credit unions almost always offer business debt consolidation loans to clients that have been doing business banking with them for some time. At the same time, these kinds of legacy lending institutions always have more stringent application and approval requirements than nontraditional lenders to be sure.

This is where you’re going to see the lowest interest rates, the longest repayment terms, and the ability to access gigantic pools of capital. Most of these long-term business consolidation loans stretch out to 10 years (and sometimes even longer than that) with interest rates that sit under 10% with a monthly repayment schedule.

SBA Consolidation Loans

The Small Business Administration also offers business debt consolidation loan packages, with their most popular being the SBA 7(a) package that can provide for up to $5 million in debt consolidation.

The SBA fully and completely guarantees the loans made by other banks and financial institutions which means you can gain access to a tremendous amount of cash and capital through these types of loans, but also that you’re going to have to jump through some significant hoops to be approved.

You can expect term lengths to stretch anywhere between seven and 25 years, interest rates that began around 6.75%, and a monthly repayment schedule. Anytime you’re dealing with the US government you have to anticipate a long and drawn out application process, however, so plan for that ahead of time.

Nontraditional Lender Consolidation Loans

Nontraditional lending institutions also provide business debt loan consolidation solutions, though usually these solutions have shorter terms, higher interest rates, and sometimes more frequent repayment schedules.

The SBA fully and completely guarantees the loans made by other banks and financial institutions which means you can gain access to a tremendous amount of cash and capital through these types of loans, but also that you’re going to have to jump through some significant hoops to be approved.

It’s not at all uncommon to see term lengths for these kinds of loans that stretch between two and four years, interest rates that can settling anywhere between 7% and 30% or so, and a bimonthly repayment schedule.

You also have a tough time getting access to the gigantic reserves of cash and capital traditional lenders and SBA packages provide, with most nontraditional lenders capping their offers around $500,000 (and sometimes less).

Advantages and Disadvantages of These Financing Packages

Pros:

  • You’ll immediately be able to conserve cash flow by illuminating a lot of the varied interest rates, payment fees, and other charges that a multitude of loans out at the same time inevitably bring to the table
  • You get complete control over your cash flow in a way that wasn’t possible previously, but also have more predictable cash flow – particularly cash going out of your business – when you can consolidate all of your loans into a singular package
  • You also tidy up the repayment process for your loans, doing away with repaying multiple lenders at the regular times throughout the month and instead repaying a single debt once or twice a month to a single lender

Cons:

  • On the flip side of things, you’ll find that you are paying interest on top of already paying interest with business debt consolidation loans. Some of these loans look like they have lower interest rates on the surface only for you to discover that the interest you are paying on your consolidation loan almost always compounds against the initial interest that you owed – making these loans are little bit more expensive than they might have appeared at first
  • You’ll also discover that you usually end up paying more interest over time, especially if you move forward with longer repayment term loans like the kind you can get from traditional lenders and the SBA
  • Finally, there may be some debts that your business is carrying that cannot be consolidated in these kinds of lending packages. You’ll have to manage those outside of a business debt consolidation loan

How to Know If Business Debt Consolidation is Right for You

If you and your business are already carrying multiple high-interest rate loans and financing packages the odds are pretty good that a singular business debt consolidation loan will help you out tremendously.

Interest rates for these kinds of consolidation loans are going to be dependent on your personal credit score, the annual revenue your business has brought in over the last 12 months, and a variety of other factors, but most of the time the interest rates are much lower with a longer repayment timeline that lets you better manage your cash and save on payments in the short term.

If you and your business are carrying short-term loans that you would like to extend beyond the terms that exist right now, giving you more time to pay them off (while recognizing that you’ll almost inevitably pay more interest over the longer repayment schedule) then these business consolidation loans are a good idea, too.

Longer-term business loans are easier to manage, easier to plan for, and easier to leverage as you move forward – especially if you’re able to generate more and more incoming cash flow through sales and business operations.

There are a number of other reasons you might look to take advantage of a business debt consolidation loan, but hopefully now you better understand exactly what these packages bring to the table thanks to this quick guide!