The benefits of debt consolidation in business


If your business has many debts and is suffering from low cash flow, debt consolidation may be an option. Provided you have a full understanding of what it entails, there are many advantages of going down this route.

What is debt consolidation?

Debt consolidation involves taking out a single loan to pay multiple existing debts. This means that the business will need to pay only one monthly repayment instead of many. Ideally, a debt consolidation loan should be at a low interest rate and the monthly payments less than the combined monthly payments for the existing debts.

Lowering interest rates with a secured loan

Many loans, such as credit card debts and bank overdrafts, are unsecured and will usually have a higher interest rate than a secured loan. A secured loan is secured using property or other business assets and should be at a lower rate than unsecured loans. By using a secured loan to pay off unsecured loans, you will pay less interest and the monthly payments can be lower.

Stress relief

Debt consolidation can cut down on the stress caused by having a number of debts. Credit collection agencies chasing payments, or the business facing the project of insolvency due to low cash flow, are situations that cause headaches for the business owner. Debt consolidation can relieve the pressure.

Particular suppliers may be crucial for the success of your business, and falling into payment arrears could mean that they will not continue to supply you with goods. Paying them off using debt consolidation will satisfy them and remove the threat of non-supply.

What to do before using debt consolidation

Before deciding on debt consolidation, it is important to seek professional financial advice. If you use a management accounting service, they will be able to look at your finances and look at the viability of debt consolidation. Obviously, the business needs to have sufficient income to be able to keep up with the consolidation loan payments.

If you have low cash flow, debt consolidation loan lenders must be convinced that this is a temporary situation. Your business plan should demonstrates how the business can operate profitably.

You will probably need security for the loan. This could be in the form of property, but some lenders can use an equity share in the company.

Act before it is too late

If your business is in financial trouble because of multiple debts, then you need to act quickly. Why not speak to us to find out aif debt consolidation is a sensible move for your business?