Most small and big businesses alike have, at some point, sought out financial assistance to help grow their business. While there is absolutely nothing wrong with that, some accumulate so much debt from their loans to the point that it negatively affects their cash flow. Business owners, in order to free up some extra cash, sometimes choose to consolidate their loans. Consolidation is when several loans and MCAs (merchant cash advances) are combined to produce lower payments for the debtor.
However, this is not all black and white. Consolidation is not a one size fits all, and may not be the right decision for some businesses and their situations. Taking out a second position is also an option for small business owners, which is something we will get into more in this article.
If you are currently on the verge of consolidating your loans, take some time to read further as we get into its benefits and disadvantages:
Pros:
- Maintaining a low payment – As previously mentioned, most small business owners turn to debt consolidation to free up some extra cash. Combining your loans and advances will reduce payment costs.
- Loan organization – In an efficiency point of view, having a just a single loan to worry about paying off every month is more organized and easier to manage. Instead of spending time going through each of your loans when the time of the month to pay comes, you can get it all done with just paying one.
- Single creditor – Another benefit of combining all your loans is that you will end up dealing with just one creditor instead of many. A company that offers consolidation such as Ironwood Finance would disperse the funds to your other lenders and create a lower payment for you.
Cons:
- Extended payment – Since your monthly payments get reduced, you will end up paying the consolidated loan longer than you probably intended. Extending payment may also cost you more in the long run since you will be paying more in interest.
- A band-aid, not a cure – Once loans have been consolidated and monthly payments have been lowered, a lot of small business owners turn to the thinking that their financial problems have been solved. Don’t get so complacent. Depending on your situation, consolidation will only serve as a treatment but not a complete cure. It is a good start to having better financial responsibility, but not the be all end all of it.
With all that being said, one must still remember that not everything makes sense for everyone. While loan consolidation might seem tempting, if you are not in the right position to do this, it will be of no help. For example, some businesses might not even have enough loans for consolidation. Interest rate and fees are also things to take into account, so before saying yes to anything, do the math and make sure you are getting a good deal. The ultimate goal of loan consolidation is to make sure that the small business will operate better with lower payments and a more manageable financial situation. If, through comparison and computation, loan consolidation for your business will not achieve this, then also consider taking out a second position instead. It will have higher monthly payments but will cost less overall since it will not have as much as fees. This will also give you a shorter payment term in order to get done with it faster.
However, if you find that consolidation is something fit for your business, start looking for options on how to do this with the best terms possible. Ironwood Finance offers loan consolidation through Merchant Cash Advance as your single payment source. Having an MCA means that a fixed percentage of your credit card sales is what you will be using to pay back your loan over time. Get started here.