Is It Time To Consolidate Your Business Loans?

Small business owners often find themselves borrowing money to bridge a multitude of financial gaps, including:

Cover temporary cash flow
Fund corporate expansions
Hire new employees
Procure new equipment

Some executives borrow as a short-term solution to build up capital reserves during slow times of the year, while others borrow to support longer-term financial efforts. Whatever the reason, business owners struggling with more than one loan often opt to reconfigure their debt to make repayment easier and more affordable.

Loan Consolidation and Refinancing – Which One Makes Sense For Your Business?

When streamlining business debt, most executives have two options: consolidation and refinancing. Many people use the terms debt consolidation and refinancing interchangeably; however, there are some distinctive differences between these two financial vehicles.

Refinancing means taking out an entirely new loan with a lower interest rate to pay off an already existing loan with a higher interest rate. Refinancing can be used on one or more loans. However, consolidating means bundling multiple (two or more) loans together, using the new loan to pay off all existing loans. While refinancing leverages the benefits of lower interest rates to decrease monthly payments, debt consolidation doesn’t necessarily mean a lower interest rate (although it may). Instead, business owners can combine debt, replacing several lenders and streamlining the repayment process into a single monthly payment.

What To Know Before Consolidating Your Business Debt

Consolidating your business debt using a real estate loan or some other financing vehicle can offer better terms, such as fewer payments and lower interest rates. However, before moving forward with the process, it’s crucial to consider several key factors such as:

Current Interest Rates

If you currently have loans at a low-interest rate, consolidation (or even refinancing) may not be beneficial, especially if you’ll be borrowing at a higher rate.

Personal Credit Score

Even though you’re leveraging a business loan, your personal credit score may still come into play. Your credit health can directly impact your interest rate.

Business Profitability

Demonstrating profitability and consistent (or even improved) cash flow can also help organizations qualify for a lower rate.

If you’re considering consolidating your current debt, Avid Commercial can help. Contact us today to hear more about our lending models to determine what makes sense for your business.

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