Experts believe that debt funding actually plays a pivotal role in any startup’s progress and growth story. However, they could fall in trouble because of debt accumulation. Small and big businesses are known to have a tough time making loan repayments. Though there is nothing abnormal or wrong about borrowing, if you fail to repay all those debts, you could end up losing your business. If you are in a financial turmoil with high costs and low profits, debt consolidation could be the most viable choice as compared to defaulting mindlessly on your loans.
Used by both small and big businesses alike, debt consolidation is known to combine all your credit lines and debts into one principal and one payment amount mostly with a lower rate of interest. The startup or a small business would initiate the debt consolidation process by taking out a brand new loan for repaying the money taken for running the business from all the previous loans. You must examine the pros and cons of debt consolidation before you consider using the process to get rid of your startup debts. Go through debt consolidation reviews online to learn more.
Debt Consolidation: Reasons for Your Startup to Use It
Debt consolidation is frequently used by startups. Here are some reasons why.
Just a Single Creditor
One of the key debt consolidation benefits is that you no longer need to deal with multiple creditors directly. You simply need to interact with only one creditor instead of having a number of them. For small businesses having numerous lines of credit, it could be really distressing to get a number of bills every month. Moreover, debt consolidation would be eliminating those stressful and harassing collection calls. It would make sure that your payment is done every month as per the schedule so that you don’t start defaulting and get drowned in ever-mounting debts. A single creditor scenario is immensely helpful as you could keep track of your debt and stay on top it.
Lower Interest Rate
Nobody is interested in paying more than necessary, as far as, an interest on any loan is concerned. In case of debt consolidation, the rate of interest on the brand new loan would be significantly lower as compared to what you had been paying earlier.
Reasons Why Debt Consolidation Could Be Risky
Even though debt consolidation seems like the best solution for repayment of your loans and eliminating your debts, startup owners must realize that even debt consolidation has its flaws.
Extended Payments
Debt consolidation may allow you to pay lower interest rate but you would be paying over an extended period of time. So even though you seem to be paying a smaller amount in terms of monthly payments, you may end up paying a lot more eventually over a period of time.
Not Really a Cure
Do not confuse debt consolidation as a cure for your poor financial health. It is just an effective but temporary solution to a somewhat permanent issue. While debt consolidation could be lowering your monthly repayments and reducing your interest rate, it would not be altering the basic issue that your startup is spending definitely more money than the amount it is earning.
Startups may sometimes, require altering or modifying their current strategies for boosting cash flow. In some other instances, modifying your financial habits is the best way to stop sinking deeper into debts.
Conclusion
If you are confident that debt consolidation is the best thing for reviving your startup’s financial health, then you must necessarily do some research before opting for a debt consolidation plan. Besides, comparing loan terms and interest rate meticulously, startup owners should be avoiding options that involve secured loans that demand pledging your property or savings as collateral.
