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When should you get a small business debt consolidation loan?

Debts and loans are normal in business. Sometimes, you have major projects without enough capital to fund, and the only way out is to obtain loan. These debts actually become a problem when there are numerous loans that exceed your financial capability. It is at this point consolidating business debt comes in.
Debt consolidation involves combining all existing debts and loans into one account or loan. This loan helps in paying off all the existing loans. At the end, you have a single loan to pay off with a lower interest rate and longer time to pay.

When is the best time to get a debt consolidation loan?

Most business owners think about consolidating debt when their debts have gotten out of hand. They start panicking when they have too many bills to pay with insufficient funds to pay them off. Waiting till the point of desperation and frustration before getting a consolidation loan is not healthy for your business – or even for you.

The best time to consolidate debt is:

1. When your business credit score is increasing

Your personal credit score determines how creditworthy you are. This also applies to business. You can increase your business credit score by reducing your debt, consistently making loan repayments and avoiding anything that is detrimental to your business – like bankruptcy, tax avoidance lawsuit, etc.

In situations where your business has to go through such, wait before applying for consolidation loans. If not, your credibility will be reduced.

Also, it boosts your score when your business profits increase consistently for a long period of time. Your business credit score influences a better and longer payment plan and an even lower interest rate.

2. When your personal finances are stable

Your personal finances matter a lot. With a good financial statement, you are able to assure the lender that you would be able to continue payments even if your business fails to.

Your personal credit score increases when you get a new source of income, when you are on-time with loan payments, and when you have landed properties that can be used as collateral.

With an incredible personal financial statement, you get a much more lenient payment plan.

3. When you’ve been in business for a while

The older your company is, the better your opportunities are in obtaining a consolidated debt loan. Lenders prefer a business that has been able to stand its ground for a longer period of time – most businesses fail in the first few years.

If your business can scale through those initial problem-years, it sets a good record for you. Though you might be in debt, it is possible that your finances are stable to a certain extent, as long as there is flow of revenue.

It is at this point of stability that you need to consolidate debt and not when you hit rock bottom. Do not rush into getting a consolidation loan until you have sought financial advice. Just like every business decision, it cannot be taken lightly.

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