Small business owners often find themselves juggling multiple loans at the same time, the legacy of temporary shortfalls in cash flow, or the need to make improvements and changes, or to expand operations. Coupled with handling the everyday needs of a business, that can be difficult to manage. Business debt consolidation can simplify matters, but is it right for you?
Consolidation vs. Refinancing
First, understand that business debt consolidation does not reduce your debt burden. It merely restructures it into a single monthly payment. With a refinancing, you are able to achieve a lower interest rate, which means you pay less over time. However, there are some instances in which you can combine your loans into a single payment while also refinancing to a lower interest rate, but it all depends on the program in question.
Pros of Business Debt Consolidation
Whether you also reduce your interest rate or now, business debt consolidation can offer a couple of key benefits. These are:
- Improved Liquidity – With a single monthly payment, you enjoy improved cash flow and better liquidity.
- Easier Bookkeeping – A single monthly loan payment makes it easier to manage your books and deal with your company’s financial situation.
Cons of Business Debt Consolidation
While there are benefits for business owners with debt consolidation, there are a couple of drawbacks to understand. These are:
- Compounding Interest – With most consolidation plans, you will ultimately end up paying interest on interest. It compounds over time.
- Increased Costs – Ultimately, consolidation may mean paying more in interest over the life of the loan, even with a lower interest rate.
As you can see, business debt consolidation can offer quite a few benefits. However, it’s not right for all companies. If you’re considering simplifying your company’s financial situation, contact us at Affinity Capital to learn more.