If you are a small business owner, then it is very natural that you will have limited resources and lower capital. Time and again you will have to look for alternative sources of capital and funds to carry on your business which is very demanding in this modern business scenario. The easiest source is to obtain a loan from banks, different financial organizations, and line of credit.
However, thanks to the easy lending policy and existence of innumerable sources, you can obtain such loans very easily and quickly. Sometimes money is even wired to your account within 24 hours. Your concern should be now in better management of your finance so that you can repay these loans on time so that you have good credit to get higher loans later.
This is not an easy task given the fact that there are a lot of twists and turns, ups and downs in business. A time may come when you will find it hard to keep up with your loan obligations, which is when you will start considering taking out a loan. It is a good and sensible approach, provided you know its pros and cons and take it out just at the right time. Remember, hitting the iron when it is hot will give the desired shape to the blade.
Beneficial features of debt consolidation loans
A small business debt consolidation loan has specific features that will provide you and your business a lot of benefits. These can be enumerated as follows:
- It will lower your interest rates
- It will reduce the size of monthly payments
- It will qualify you to borrow added working capital and
- It will offer you the longest and easiest repayment terms.
However, knowing the right time to take out consolidate business debt is crucial. It will depend on your personal credit, terms of your existing debts and current finances of your business. In short, the right time to take out these loans is when you are sure that it will improve both your personal as well as your business credit profile.
If you take these at the wrong time, it will damage yours and your business credit, waste your time and will even hurt your capability to borrow in the future.
Credit score and business profile
There are usually five significant signs to indicate it is a good time to consolidate your small business debt. Two of these are the credit score and profile of the business.
- Improved personal credit score – This is the most significant sign of all. If you have an improved personal credit score, there is a high chance that you will get lower interest rates and even qualify for longer repayment terms. Such improvements should be significant and not by a few points. Moreover, your personal credit should not have negative credits such as tax liens, bankruptcies, or repossessions.
- Improved business credit profile – At the same time it is also required to have significant improvement in your business credit profile. This will make you a low risk and a more responsible borrower. It will show that you do not have debts more than you can handle and that you are not utilizing the full value of the available credit lines.
There are a few specific requirements by the lenders to consider a business credit profile to be good enough to grant a business debt consolidation. These factors are:
- Positive and timely payment history
- Multiple companies reporting
- An error free reporting
- A high percentage of unused available credit and
- No negative reports.
Therefore, you will need to understand business credit reports, their working process, and how to build it up. Check your score regularly and visit https://www.nationaldebtreliefprograms.com/ to get better information about loans and debt management.
Your personal finance
Along with your business, your personal finance must also improve as it is very important for any small business owner. The main reason to say so is that you are likely to be asked to provide personally guarantee for the business consolidation loan. It is important for the lender to feel that if your business cannot make the payments, you are strong enough financially to make those payments stepping in with your personal finance.
Specific ways in which you can improve your personal finances include:
- Increasing your income
- Opting for new sources of income
- Reduction of outstanding debt recently
- Increase in the equity that you may pledge as collateral
- Fewer dependents and
- Reduced household expenses.
This will result in a consolidation loan with better interest rates, longer repayments, and more convenient payment schedule.
Improve business finance
It is best to apply for a business debt consolidation if and only if you have improved business finance that will include your business revenue and profitability. There must be a positive trend in it categorically reflecting your monthly, quarterly, and yearly success.
Few specific situations that will improve your eligibility to get a consolidation loan include:
- Finished a busy season
- A significant increase in revenue in the last 3 to 6 months
- Filed more taxes recently showing improved profitability and
- Lowered expenses.
Reaching a new milestone
If your business reaches a new milestone and the longer period your business is operational, you will have increased business financing options are available. Several lenders will set a minimum time limit for a business to be operational to avail one of their loan products. This time limit can be three months, six months, one year or 2 years, depending on the business policy of the lenders. More the number of years the better as that will significantly increase the opportunities to obtain a debt relief or loan. However, the lenders will not count the idle time of your business as there was no revenue generated.
If and when your business hits a new milestone, you will have a better chance in business financing. It is therefore required that you juggle between your short-term loans, credit card loans, and MCAs so that you hit a milestone easily and in more than one ways.