Today, the credit industry functions precisely like an industry! It means that there are unique solutions for established companies and people at every stage of setting up their business. Even though startups today have better chances of finding financing, choosing the right funding option can be challenging. With countless choices around, it can be tough to know which ones are meant to help the entrepreneur and which ones are exclusively there for the profit of the creditors.
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Debt Consolidation Loans
A wrong move in the financial management can lead a startup into a debt trap. Choosing the wrong funding option or taking up too many loans at the same time can create a messy financial situation for any business. Thankfully, there are ways to correct the errors and bring the company on the right track. Debt consolidation can eliminate the hassle of managing multiple loans at once while bringing peace back into an entrepreneur’s life.
Understanding a Debt Consolidation
The process here is to combine various existing credit lines and loans into one single account which possibly has a low-interest rate, a more extended repayment time, and easier repayment schedule. Debt consolidation has several benefits to offer to startups that are struggling with debts. Let us discuss a couple of them.
- Streamlines the repayments
If you have used more than one personal loan or credit card for your start-up, you will understand how difficult it is to manage multiple repayment patterns. Each new debt makes the process even harder and creates instability in cash-inflow and outflow. Merging all the debts into a single line of credit enables you to streamline the whole process.
- Minimizes the expense
Consolidation not only helps you manage loan payments, but it also helps you to save some money. As mentioned above, with an outstanding debt consolidation loan, you get to pay a lower rate of interest, and you need to pay a small amount each month to service a single loan. It allows you to bring your finances back on track.
Start-up credit: Secured and Unsecured Debt Consolidation Loans
Two ways in which start-ups can attain debt relief is by opting for secured and unsecured business loans. Let’s understand the difference between the two.
Unsecured Debt Consolidation Loan
Unsecured loans are those that do not require collateral. Startups with decent credit ratings can avail unsecured consolidation loans at affordable interest rates. On the other hand, businesses with a poor credit score may have difficulty finding unsecured loans with agreeable terms. In this scenario, it is advisable that you work towards improving your credit score before looking for a consolidation loan.
Relieving start-up business debt through unsecured loans
By acquiring an unsecured business loan for your start-up venture, you can obtain favorable repayment terms for every other loan and release all your debts. Here’s how you should go about procuring one.
Check if a financial institution is willing to offer a business loan
If you hold a decent credit score, getting a personal loan at favorable terms would not be difficult for you! The essential aspects to consider is the loan terms and conditions and compare it to the existing debt. Sometimes unsecured loans have strict terms and steep interest rates that you must analyze thoroughly before applying for one.
In a nutshell, the primary objective is to be able to obtain a personal unsecured loan and use it to repay all the other debt. Also, when you manage this smartly, you might end up with a deal that requires you to pay less than what you would have to pay for multiple individual loans.
Borrowing from family and friends
If you are unable to secure a loan from a traditional lending institution, it would be a smart decision to ask your friends and family to help you out. However, even if you are borrowing from loved ones, it is essential to be serious about repaying them the money within a stipulated time frame. In most cases, relatives and loved ones do not charge interest on the money they lend. So, you only have to pay what you borrow.
Follow the rules of the repayment
To get back on the right track and get your finances in order, you would have to follow the terms and conditions of the consolidation loan. After consolidating your debts, you must pay your monthly dues on time and keep up with regular repayment. Defaulting on payments or missing deadlines can bring more trouble.
Relieving start-up business debt through secured loans
The other option is to go for a secured consolidation loan. Secured loans usually come with some risks, especially if you are not confident in your repayment abilities. With this type of loan, you have to provide collateral, which can be any personal asset such as your home. Secured loans usually come with low-interest rates, but they also pose the risk of losing your asset if you default on payment.
Fetch out a finance source
If you possess few assets that you can put as collateral to procure a loan, this is a smart alternative. Usually, secured loans comprise of car loans or home equity loans. It is always a good idea to obtain these loans from financial institutions such as credit unions, title lenders and also reputed banks.
Take a close look at how your start-up business is functioning and understand if you are likely to make good profits, with which you can repay your debt consolidation loan amount.
Every start-up business has a growth curve of its own! The start is never predictable. Hence, incurring a start-up business debt does not indicate that you have made a blunder. Established brands too had debts to recover in their starting phase. However, if you are faced with a credit crunch or have to clear a business debt, you need to weigh and select your options from unsecured and secured debt consolidation loans.
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