Taking Control – how debt consolidation could help your business

The rise in the number of lenders in the marketplace and the ability of business owners to get finance with almost the click of a button has both a positive and a negative impact.

Whilst these businesses are raising finance to support their business, there is often a worry that they are using loan payments in the place of increasing sales or controlling escalating costs.

Over the last few months, we have seen a few businesses that have taken out numerous loans from various places without taking advice; in some cases, they have been subjected to daily payments at astronomical rates.

Whilst we are not disputing that there is a need for these lenders, we highlight that with a more precise, thought-out plan, these businesses could structure the loans much more cost-effectively, saving money both in the short and long term. But more importantly, they are not potentially cutting themselves off from more lending opportunities in the future.

If this is you or someone that you know, then there is a potential solution: Debt Consolidation.

Debt consolidation is an effective way for businesses to restructure existing, expensive business debt from lenders, corporate credit cards, creditors, suppliers or collection agencies.

It’s a process whereby a single, larger loan is taken out to pay off multiple smaller debts. This can be through secured borrowing against an asset, such as a property, or further unsecured borrowing.

It’s easy to get into financial difficulty if you have too many credit commitments to keep track of each month or because cashflow problems or sudden unexpected expenses mean you cannot keep up repayments on short-term, high-interest debts.

The main benefit of debt consolidation is that it allows the borrower to improve the liquidity or cash flow of their business, and it can also reduce administration costs, especially if the company has multiple creditors to service each month.

The benefits of debt consolidation

Potential savings: If your new borrowing rate is lower than your original rates, you can reduce the overall amount you have to pay back. Repaying over a longer period could also bring your monthly payments down.

Reduced admin: Deb consolidation will reduce your administration if you have several debts spread across different lenders. You’ll only have one creditor to work with, rather than juggling the repayments for multiple sources of business finance, like credit cards and invoice factoring. By bringing them into one place, you can free up time you’d otherwise spend dealing with creditor calls and emails and reduce your admin costs.

Greater efficiency: Your debt will be in one place, so you can easily track your finances.

Clearer budget: One monthly repayment should make it easier to stick to a monthly budget.

Potential to boost your credit score: Streamlining your bills should reduce your chances of missing a repayment and, therefore, positively affect your credit score.

Flexibility: Fixed repayments or flexible payments to allow for seasonal fluctuations

Getting the right advice

One word of caution. Leading debt charity the Debt Advice Foundation warns that debt consolidation might only be the solution for some depending, for example, on your credit rating and other factors. So, getting the right advice is imperative before proceeding along this route.

A commercial finance broker will help you to compare all the options so that you only jump straight in with another loan once you are 100 per cent happy you’ve found the right one. Your broker will have access to a wide range of alternative finance providers, so you don’t have to rely on the high street banks.