Business Debt Consolidation
Debt consolidation is a tough decision to make, particularly in the business finance market. In today's rocky financial market especially, small and large businesses alike are struggling to stay above water. With inventory costs, employee payroll, taxes, licensing and the like, there are a lot of factors that determine a business' financial security. When sales and general business income does not support your debt payments, consolidation may be the answer.
What Is It?
Business debt consolidation is the process of taking out a new loan to pay off a group of other outstanding business loan balances. In essence, it simplifies a business' debt by combining all its loans into one larger lump sum loan. Business debt consolidators will provide the business with lower monthly payments and lower interest rates, allowing the company to pay off its entire balance slowly over a longer period of time.
How It Works
Business debt consolidation can vary from business to business. The main determining factor in financial consolidation option is the business' size.
Small business debt consolidation: A small business in the United States is defined as any business that has a net income below $5 million per year. This number can fluctuate from region to region and also by industry. While small businesses are less inclined to consolidate due to a lack of large assets, the U.S. Government passed the Small Business Act in 1953, creating the Small Business Administration. SBA provides free debt and consolidation information to small businesses and can guarantee a consolidation contract for any qualifying company that applies for one. Small businesses can consolidate with outside organizations, but SBA typically provides better offers.
Big business debt consolidation: Big businesses net over $5 million per year, and typically include conglomerates. The $5 million minimum is variable by industry and national region. These companies have more assets, so they are more likely to find a secure loan from a consolidation firm, because they can put up their owned store properties as collateral. To avoid bankruptcy and the liquidation of their assets, big businesses are more likely to turn to consolidation than are small businesses.
Before any business consolidates its loans, however, it should gather all the relevant financial records it can, including invoices, bills, statements, income records, deposit records, etc. By having all this information readily available, your business can decide 1) how much debt it is really in, 2) which accounts hold the most damaging potential and 3) whether consolidating is a viable option for the current and future state of the business.
So It's Time to Consolidate
After weighing all the options regarding debt consolidation for your business, you have decided to consolidate. The best thing you can do as a business representative is shop around for better deals and more accommodating payment rates. Business debt consolidators will likely charge a processing and account management fee. This is mainly due to the fact that business credit history is not as simple as individual credit history. For example, some business owners use their own credit to garner business loans to begin with, thereby entangling their personal credit history with that of the business. Also, businesses likely have more open accounts and from more varied vendors, requiring a more highly capable financial planner to oversee it all.
That being said, be sure to investigate the background of the company you are consulting before signing a contract or taking out another loan. Any company that is not financed by the government is capable of fraud or panhandling. The last thing you want is to be in more debt than before. Check for the firm's certification, ideally from an established, peer-reviewed organization such as the Better Business Bureau. Also, Certified Development Companies (CDCs) are reliable, as well. They are private, nonprofit corporations whose goal is to contribute to their community's economic development.