Consolidating fixed loans
But do these companies really do what they promise, and can they help your business?
Here’s everything you should know before applying to take out a debt consolidation loan. During the start-up or growth stages of a small business many small business owners take on debt.
An extended repayment term could lead to a higher cost of capital overall.
Variable or Fixed Interest Rate One of the reasons that many small business owners look into debt consolidation is to convert variable rate debt into fixed rate debt.
If you’re a small business owner struggling to make payments on credit cards and loans you might have been wondering if consolidating your debt would be a good idea.
Debt consolidation companies often target those with high balances, sending letters and calling with promises to lower your monthly payments and save you money.
If Prime rises and you’re then paying more interest on the loan product you used to consolidate you could end up paying more interest and fees in the long run. APR Don’t be fooled by a simple interest rate that’s lower than your current interest rate, always ask for the APR.
Being able to compare the APR between your current loan products and the debt consolidation product that you’re considering will help you make a wise decision.
This is because when you pay off a loan early they’re not making as much money on it as they had planned.
The prepayment penalty helps them make up some of that lost profit.
If you consolidate and pay off debt and then immediately charge up balances on a business credit card you could worsen your financial situation.
And you should be absolutely sure that the debt consolidation will save you money and hassle overall.