It can be stressful and scary when your business falls into a lot of debt. Dealing with many creditors at a time can also be exhausting. If your company is in such a situation, it may be time to consider consolidating your debt.
What is debt consolidation?
Debt consolidation is combining multiple lines of credit into a single one. It is done by taking another new debt consolidation loan to close all the older ones, leaving you with only one loan to repay.
Consolidate your debt only if you are eligible for a business debt consolidation loan at a lower interest rate.
That will make your EMI payments more manageable if your cash flow is drying up due to factors outside your control. However, if you have a poor credit score, wait until your credit has improved.
How a business loan can help you consolidate your debt
You can avail a business loan from banks or non-banking financial corporations (NBFCs) to consolidate your debt. There are several advantages to this:
- Lower interest rates: Consolidating your debt goes a long way to reduce your interest rates, particularly when you avail a business loan. Though you may pay more in the long term, your monthly dues reduce enough for you to be able to manage them. With credit cards, particularly, the interest rates tend to be pretty high, and it can attract penalties if you miss payments.
- Single creditor: When you have many creditors, it can be difficult to prioritise your payments. However, when you consolidate your debt with a business loan, you only have to deal with a single creditor. This makes it infinitely easier and more convenient to make payments.
- Improve your credit score: Since debt consolidation allows you to pay all your existing debts early, it improves your credit score. As long as you pay the EMIs of the business loan you took for debt consolidation on time, your credit score will continue to rise. Since business loans often have affordable interest rates, you will have to pay a lot less on your EMIs.
- Easily accessible: Business loans are easily accessible, as they often require very little paperwork. If you take a loan from certain NBFCs, they may approve it in just 24 hours. This adds to their accessibility and improves your chances of getting the money fast. Thus, business loans are a great option to consider if you need to consolidate your debt.
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