The ordeal of repaying debts continue to be a struggling act for both small and large businesses. There is absolutely no wrongdoing in seeking financial support in the form of monetary loan to make your business grow. However, the loans and the debts must be repaid on time. Failing to do so can result in facing serious consequences. You may end up losing your company’s possession. If there is a situation like, high costing with low profitability due to the present financial conditions, the best option is to opt for debt consolidation to repay the existing loans and minimize the burdens. There are certain advantages that debt consolidation offers specially to small business owners. Before we get into those, we will see what debt consolidation is.
What Exactly is Debt Consolidation?
Debt Consolidation is a loan repayment concept combining different credit lines and loans into single payment and principal amounts, with lower interest rates. This concept is equally preferred by small businesses as well as large corporates. Structurally speaking, in debt consolidation, the debtor takes out a new loan for repayment of the previous debts.
Builds the single creditor concept
The most important part about debt consolidation is the fact that the debtor deals only with a single creditor. With this concept, an outside credit lending company develops a payment plan based on the debtor’s debts and then accordingly, disperses funds for clearing all the debts associated with the debtor. As a result, all the previous debts get cleared and the debtor is kept with a single debt, i.e., the new debt incurred from the outside company. This single debt amount comes with easy repayment policies that also include flexible repayment dates and a low interest amount. For any small business with numerous lines of credit, it is stressful to receive multiple bills every month. Debt consolidation option for your business not only cuts down the harassing phone calls from lenders, but also ensures you never fall deeper into the debt. With debt consolidation policies, you never miss a debt repayment to the lenders.
Releases stress through lower interest rates
Since the debtors have to pay a lower interest rate on the new loan than what they are paying for the original loan repayment, they are much relieved and less stressed.
Gets rid of collection calls
You cannot tolerate the constant calls from collection recovery agencies that threat debtors till they pay up. This is an additional worry that you can avoid by opting for debt consolidation.
If you find it difficult to pay off your debts at the present rates, consolidation policies may well prevent you from a having defaulter’s status on the creditors’ list.
While looking for debt consolidation options, you must be careful with the lenders available. A lot of lenders may play some tricks with the clients by extending the payment periods for long. While it looks like you are paying smaller amounts on a monthly basis to repay the debt consolidation loan, the creditor may well be earning huge amounts of profit from the never-ending debt repayment process, in which you are mired.
Debt consolidation is an effective and useful way to settle all your previous debts and prevent your company from getting bankrupted. However, focus on the terms and conditions of the creditor before approaching a particular creditor for the consolidation.
Author Bio: Jeremy Stewart is a debt consolidation consultant and a finance executive for a reputed Fortune 500 company. He offers suitable guidance and advice related to debt consolidation option for your business.