By Analytix Editorial Team
Is your business debt becoming too much of a burden and harming your business credit? Beware! Too much debt with high-interest rates can stifle your business cash flow. In these situations, refinancing or debt consolidating loans make good sense.
Small business owners often confuse debt consolidation with refinancing because the result is sometimes similar. However, they are two different approaches to restructuring business debt. Let’s explore both of these financing options in more detail.
Business Debt Consolidation
Similar to personal debt consolidation, business debt consolidation involves combining all of your multiple existing debts and paying them through obtaining a single loan, preferably at a lower rate of interest. This helps you streamline your business debt by combining multiple debts into one single monthly payment. You more efficiently manage debt and even pay less in the long run.
Loan refinancing is when you take a new loan and use it to pay off the original debt, thus, saving money in the long run and better managing cash flow. Usually business refinance loans have lower interest rates and payment terms which help ease the strain of business debt.
Although the outcomes of both are similar, how do you decide which is the best choice for your business? Well, it depends on the situation.
When is Business Debt Consolidation Right for Your Business?
If you’re struggling with low profits or high costs and bootstrapping isn’t an option, business debt consolidation is a great idea to stop defaulting on your loans. Business debt consolidation combines various loans into one single principal sum, usually with a lower rate of interest.
This allows you to better manage your cash flow, increase repayment terms, lower your monthly payment, and improve your credit score. But before you proceed, it’s important to determine if business debt consolidation is right for you. Consider:
When is Refinancing a Better Choice?
If you’ve got just one high-interest loan that has an unfavorable APR in the context of the present prevailing interest rates, loan refinancing is a better choice to reduce your lifetime interest costs and monthly payments. Refinancing gives you the option to pay less over time for your borrowed capital and give your business the boost it needs to grow.
Loan refinancing with a longer term and larger principal allows you to maintain a monthly payment similar to your current one while borrowing more overall. Also, if you qualify for a refinancing loan with a lower interest rate than your original loan, you’ll save money over time as you accrue less interest.
Before you choose debt consolidation or loan refinancing, make a smart decision by consulting an expert. With an expert by your side, it becomes easier to evaluate additional options and go a long way in helping your business thrive. At Analytix, we can be the catalyst for your business growth and empower you to make the smartest financial decisions.