Posts tagged: consolidating small business debts

Small Business Debt Consolidation Loans and Programs


Usually sometime in the first one to two years of a business’s life it’s going to run into some serious cash flow challenges. This is even true for businesses with a great product whose sales jump up to health levels right away. What many people don’t realize about running a small business is that success can be expensive. Often business owners have to borrow money to stay ahead of demand, and borrowing money often leads to trouble. If a business owner can’t manage her monthly debt service a small business debt consolidation may be her only solution.

A small business debt consolidation loan often behaves in a very similar way to consolidation programs that individuals with too much debt go through. Meaning, the business contracts a company to approach its creditors and begin a negotiation process that results in either a) lower principle balances on the loans, b) lower interest rates on the principle, or c) both.

Banks are willing to work through these negotiations once the consolidation company makes it very clear that the alternative is to have the business owner essentially walk away from the loans, leaving the bank with nothing. It’s a situation where the bank realizes “this is the best we’re going to get, so we’d rather take 40 cents on the dollar than get nothing at all.”

Since the business owner ends up fulfilling something other than the originally agreed-upon loan terms, his or her credit rating will be affected. If the loans are in her own name, her personal credit score will take a dive. If she borrowed the money through her corporation, then any corporate credit she’d established will take a serious hit. If you go through a small business debt consolidation program you’re not likely to be able to borrow any more money for your business for a long time. That’s something to consider before you take on the risk of business loans in the first place.

One thing to consider is that small business debt consolidation loans aren’t for you in the first place. Even if your loans are starting to overwhelm you, a consolidation company may not be able to improve your situation much. For example, if your interest rates are reasonably low, consolidating all your balances to one won’t make a significant difference. If you can’t get a reduction in principle there’s really no point consolidating your business debt, so keep that in mind.

Overall, borrowing money for something as risky as a business startup isn’t something you should do unless you’re very confident the business will be able to make the payments on the loans. Starting a business is stressful enough without having the added worry of not being to keep your payments current.