This article is written by Marina Thomas. 

Startups are the results of brilliant ideas that innovative minds bring to life. Though it sounds impressive, it is incredibly difficult to execute. The aspiring entrepreneurs often start from scratch, with insufficient funds to keep them going. Startups are under more pressure, both financially and in terms of day to day operations. Their journey is filled with more ups and downs than businesses that have already established themselves. Starting and running a business does not just require guts but also a clear foresight.

It is an uphill climb for startups

Even with the right ingredients and maximum diligence, a business may fail to deliver the desired results. It may be because of the lack of sufficient funds. To secure both the present and the future of their companies, many aspiring entrepreneurs attempt to gather money from multiple sources. It means that these new business owners have to pay off numerous creditors at regular intervals and ensure that the business is performing well enough to provide for those payments. After a point of time, the intense hard work and uncountable sleepless hours start to get frustrating. Entrepreneurs, with their constant worry about paying off loans and making ends meet, often lose sight of their business goals. In fact, one out of four businesses fails due to the lack of funds.

This crisis makes one wonder, isn’t there a better way to manage business debts, especially for new businesses? Bargaining or negotiating with creditors does not do much as far as reducing interest rates are concerned, and it may even affect one’s credit scores adversely. However, not all hope is lost for new entrepreneurs. You can go for a debt consolidation loan.

What is a debt consolidation loan?

Debt consolidation refers to the process of taking out one loan to pay off many other debts. This type of loans typically has low rates of interest. After combining the multiple lines of credit, you do not have to worry about arranging for the various loans at regular intervals. You just have to make one payment every month, and you are sorted!

What are the factors that one must consider before consolidating their loans?

1. Debt consolidation may be convenient as well as the best option for your business, but there are still specific factors that you need to understand to get a clearer picture of your financial situation.
2. The first fact to acknowledge and understand is that even with consolidation, you will still have to pay the loan. You have not repaid your debt as yet; you have just reduced the number of monthly payments to one, which will give you mental peace and ease of planning your finances.
3. Also, acknowledge that if you are unable to pay off your loans on time, and your creditors are calling up to demand payments, your company’s finances may be slipping out of your hands. It is time to re-evaluate your income and your expenses, cut down the expenditure wherever possible and set up a plan to accumulate some savings. You can focus on amplifying the promotional activities of your products/services, which may lead to more sales. You may also need to adjust your lifestyle to increase the rate of savings considerably.
4. Just as your primary goal would be to pay off the existing loan, you would also need to refrain from availing any other loan until the existing one is fully paid off. Opening a new line of credit will keep you forever stuck in the vicious cycle of debt. So, stabilize your income sources and see how you can keep your expenses in check.

How can one consolidate their business debts?

First, you need to be entirely sure that debt consolidation is the right option for you in the current situation. Start by looking up debt consolidation service providers and shortlist a few out of the ones that you think will be able to broker you a new loan. Once you finalize one, that company will be responsible for consolidating all your existing loans into one and negotiating a new one on your behalf. The consolidation company will also take care of the payments that you owe your previous creditors. If you are tired of getting repeated calls from your creditors, rest assured as those will soon stop; right after your debt consolidation loan is approved.

Debt consolidation loans come in two types — secured and unsecured. The former requires collateral and has a lower interest rate, whereas the latter does not require a security deposit but has a higher interest rate. If you still have some control over your finances, you can consider going for the former option, but if your business is in serious trouble, it would not be wise to choose the secured loan just to avail the lower interest rate. In the worst-case scenario, if your business goes bankrupt, you may risk losing your home or other properties that you had put up as collateral.

Unforeseen circumstances keep rising in business. Dealing with them can become extremely difficult, especially during a financial crisis. Fortunately, debt consolidation loans can help. From the above factors, it is evident that being a little careful about finances and consolidating debts can go a long way in making a business debt-free. A new entrepreneur must be cautious about possible creditors. Also, while choosing a company to consolidate business loans, it is crucial to conduct research. Experts opine that before finalizing a debt consolidation company, the entrepreneur must be sure about one thing – the company must have experience of consolidating debts for startups. Startups are different from established enterprises and have specific requirements, which require particular attention.

Wrapping up

Before signing on the dotted line, check the reviews and testimonials given by previous clients. If needed, you may also consider financial or debt counseling. In fact, consultation can help a new business owner to find better debt management or consolidation services. An important point to note is that a good company would never try to force consolidation loan on someone without making attempts to reorganize their bills, payments as well as income options. In conclusion, one point that needs to be stressed is that one needs to work hard to pay off debts, but even harder work is required to stay out of the habit of borrowing.