Many business owners find themselves paying multiple creditors for their business loans. Keeping track of multiple monthly payments can be an accounting nightmare especially for companies that have been in business over three years. The owners may have started the business with credit cards or home equity loans and purchased equipment through vendors and specialty finance companies. Consolidating business loans is a great option but the mechanics can be a bit tricky. Here are three items to consider prior to consolidating your business loans.
- Cash Flow
Has your cash flow been affected by the multiple payments you currently need to make? Low cash flow could be a factor in whether or not you would be approved for a consolidation loan.
You must be able to show your business would be generating excess class flow after the consolidation to be considered. - Collateral
This is one of the toughest areas to navigate when trying to consolidate business debt. What will you use to secure your loan against? This is especially difficult because some of your current loans may be unsecured. Do you have equipment, vehicles or real estate? These items can be used as collateral but there are restrictions on how much you can use. Be sure you make a list of assets your business has available to use as collateral. - Term
The terms of your new consolidation loan will be determined by a number of factors. Typically the loan will not extend beyond the useful life of your business’ collateral. If you want to refinance credit card debt you used to start the business or used as working capital, the terms will likely only be a few years long, depending on your company’s attempt to pay down the debt. It is important to clearly define the original purpose of the funds.
Business debt consolidation can be confusing. If you find your growing business in need of debt consolidation and have questions, please contact a First Commonwealth FCU Business Services Officer today.