Getting the right debt consolidation loan can lower your monthly payments, reduce your monthly interest rates and improve your credit score with your bank. However, knowing the right time to apply for your business debt can be a little challenging if you are a first-timer. Applying for a business consolidation loan will depend on your business finances, funds, existing debts and future project plans. These will determine the amount you will be applying for as well as the right time for application. Applying for a consolidation loan can also get you added funds if required.
What are the milestones that determine the right time to apply for a business debt?
There are quite a telltale signs for this, and you should not wait for complete bankruptcy to apply to your potential lending parties.
Here are 5 things you should look for
1. A good personal credit score
If you have fairly recovered from your previous debt attempts and your personal credit score is in good health, it is time for you to apply for a loan. A good credit score is necessary for low interest debt consolidation meaning, a good credit score is like a litmus test for a borrower. The lenders feel more secure loaning money to businesses if they have more chances of repayment. A good credit history is usually a direct sign of the same.
"Applying for a business consolidation loan will depend on your business finances, funds, existing debts and future project plans"
2. A decent business credit profile
If you have an improved business profile, this usually shows you as a responsible borrower. This shows that you can handle a loan and you are not using your full value of all available credit lines.
What are the signs of a good business credit profile?
• multiple positive payment histories
• No reports of bankruptcies and repossessions
• No tax liens
• No reporting mistakes
• Reporting from multiple companies and parties
If you have 1 and 2 sorted, then you should look into business consolidation loans right now.
3. Better business finances
When your sales are climbing fairly steadily and you have stabilized your business finances, it is the right time to approach a lender. You can increase your chances of qualifying for a loan by doing the following –
• Finish a busy season
• File all recent taxes
• Lower your expenses significantly and increase your revenues
• Show an increasing trend of revenues for the last 3 months at least.
4. Better personal finances
Your personal finances are just as important as your business finances while applying for a loan. You have to personally guarantee the loan for your business. And in case of secured loan, you will be asked to pledge a collateral.
5. How long has your business been running?
Most startups go six-feet under within a year of startup. Therefore, you need to convince consolidating companiesthat you will be afloat long enough to repay his money.
Once you have hit these milestones, it is easier for you to get business consolidation loans. You can get up to $35,000 or more (depending on your credit score) for a nominal interest rate.
However, how do you go about applying for a consolidation loan to the right company? It is not as simple as opening a deposit account in a bank or lending small cash amounts for minor expenses. This needs considerable amount of thinking, research and hard work. Here are the 5 things you need to do once you know it is time to apply for a consolidation loan –
i. Gather your statements and bills
These are concrete proof of your business expenses, account details and a detailed explanation of how much your business needs to stay afloat for the next couple of days. Therefore, you need to pull together all your debt statements before you march into your lender’s office.
ii. Categorize your debt
This may seem easier than it actually is. You need to see which debts need to be paid first and which ones can wait. You should consolidate all debts that have a higher rate of interest and a sharper deadline waiting. This way you can take out a smaller loan that will perfectly fit the purpose.
iii. Seek debt counselling
This is a very important step almost all business owners overlook. They try to go to lenders directly. However, that can lead you to apply for larger loans than you need. Commercial debt counselling is necessary to help you understand the importance of the debts, their priorities and the way you can minimize your total payments.
iv. Try to approach a debt-consolidation loan from a Small Business Association lender
This is where you can get the best interest rates for the longest repayment terms. You can also expect higher loan amounts for lower credit scores. This is both reliable and predictable, as the interest rates are fixed throughout. There have been cases, where entrepreneurs have paid off large debts for over 10 years with the same interest rate.
v. Compare and window shop
You need to know the best offers you can get in your situation. You cannot do that by approaching just one lender. You need to compare the rates online and then check the loan amount you will receive for your credit scores. In many cases, the qualifying credit score widely varies among online consolidating companies.
The bottom line is, you need to consolidate all your high interest loans and erratic payment schedules to get the most out of your business. While SBA loans can be extremely difficult to qualify for, they are also the most rewarding. In case you are applying to private associations, be sure to do a thorough background check before signing on the dotted line.