Canadian debt levels are on the rise again according to Statistics Canada. Recent numbers show that the average Canadian owes $1.71 for every dollar they spend. Things don’t look much better for Canadian businesses. About 44 percent of businesses say they have reached their borrowing limit. The average business borrowed $110,000 just to survive the pandemic.
In this climate, it is easy to see how businesses are looking for some debt relief. One of the best ways to get that relief is by consolidating debt into a lump sum. This allows companies to reduce the interest they pay, simplify the paying process, and pull themselves out of debt without hurting their credit rating or reputation. It can also lower the monthly sum that they pay each month.
What Is a Business Debt Consolidation Loan?
In a business debt consolidation scenario, you take out a loan from a bank or financial institution that will enable you to pay off all your other debt. It can cover other loans, credit card debt, and overdue bills. Essentially, you are borrowing a large sum of money to pay off all the small debts you owe and place them under one, single loan. Then, you’ll make monthly payments to your consolidation loan until it has been paid in full. It is one of the best options for people and businesses looking to get out of a risky financial situation.
Benefits of a Business Consolidation Loan
For companies that are in serious debt, a consolidation loan has several benefits, including:
- A single monthly payment rather than several different ones.
- Consolidation loans often come with a lower interest rate, which can save money over time.
- You’ll have a set amount of time to pay off your debt. So, you can count on being debt-free in two to five years.
- The fees that most lenders charge for a consolidation loan are reasonable.
- You’ll stop accruing more debt while trying to get out of it.
Drawbacks of a Business Debt Consolidation Loan
While there are several advantages to use a debt consolidation loan for relief, there are some drawbacks, including:
- You may be required to put down some collateral or security for the loan.
- If your business doesn’t have a good credit score, it may be difficult to find a lender willing to work with you.
- Interest rates can still be higher than other loan options.
- If you don’t have collateral, these unsecured loans can have considerably high interest rates. While most lenders don’t approve these types of loans often, if your business has a high net worth and a strong credit score, then you might be eligible.
- Unless you are willing to change your spending and budget habits, a consolidation loan won’t solve the problem for the long term.
Finding the Right Consolidation Loan
When it comes to finding the right business consolidation loan that is right for you, there are several things to consider, including:
- Loan amount. You’ll need to find a lender who offers you enough money to cover all your debts.
- Fees. Be aware of what fees you’ll be expected to pay for the duration of the loan.
- APR. This is the annual percentage rate. It will dictate how much interest you pay each year.
Remember that even if you find a loan with a low interest rate, if you are paying a lot of fees, it still won’t be the best business decision.
Other things that you should think about before you apply for a business consolidation loan include how much you owe. Many businesses use credit cards and loans to cover costs like equipment and supplies. However, if you’ve hit a slump in your sales and are unable to build enough revenue to keep up with your debt payments, it can start to hurt your business in different ways. You may find the interest rates rising, your businesses’ credit rating dropping, and you’ll also run the risk of bankruptcy. Before making any decisions that will impact your business long term you may want to discuss your options with a Licensed Insolvency Trustee.
It is also important to consider the type of debt consolidation that is right for your business. Along with an unsecured loan, you could consider a credit card balance transfer, a home equity loan, or seek the help of a debt management program.
Applying for a Business Debt Consolidation Loan
If you are considering applying for a business debt consolidation loan, it is a good idea to talk to a professional first. The reality is that although they can sound like a good option, debt consolidation will not be the best option for all businesses. The amount of money you owe, the type of debt you owe, and the reason for taking out the loan are key in knowing whether a debt consolidation loan is right for your business.
There are a few steps involved in the application process. They are:
- Research loans and lenders to find the one with the right terms for your business. Find out what the fees are, how strict their policies are, and compare interest rates.
- Once you decide on the loan and lender that is right for you, fill in all the application forms and submit them.
- Wait for approval from the bank or financial institution.
- Once approved, get access to your money and pay off all your creditors.
- Set up a monthly payment schedule for your loan and stick to it.
- Pay off the loan and become debt-free.
It is important to have a plan and talk to a professional about your options and whether or not a business consolidation loan is right for you. If you are interested in learning more about consolidating your business debt, call Kevin Thatcher & Associates at 1-888-702-9801 or contact us here.