Small Business Debt Consolidation: The Merits & Demerits to Consider

Posted on


Small businesses and large corporations both are known to struggle equally with loan repayments. There is absolutely nothing wrong with looking for financial assistance for growing your business but if you fail to pay back the loans, those debts could lead to the loss of the company that was set up as a result of your hard work and perspiration. In case you are suffering from high costs and low profits, debt consolidation is surely the best way, and a viable alternative evading loan. Debt consolidation is used by businesses and individuals and it combines diverse credit lines and loans into single principal amount or payment options mostly with a definitely lower interest. The debtors are used to indulge in new loans for repayment of the previous loan. You need to remember that debt consolidation provides both merits and demerits.

Merits of Debt Consolidation

Your business would be requiring capital as it grows. While many organizations are successful in keeping debt under control, there are still many others who soon realize that they are neck-deep in debt. One single small business loan would become two and so on. A single maxed-out credit card would lead to another one. Can you understand that debt has a tendency to spiral totally out of control? With small business debt consolidation you could:

  • Improve organization of debts by elimination of multiple loan payments.
  • Reduce/ cut down monthly cost.
  • Avoid dealing with multiple lenders and handle only one single creditor.
  • Do it minus a negative influence on your credit report, no adverse effects on credit score.

Once people are clear about debt consolidation meaning in common terms most small business owners are chiefly worried about one thing. They are concerned primarily about cutting down their monthly costs. With small business debt consolidation, you get a loan at a lower rate than what you seem to be paying currently on these loans.

Only One Creditor

Perhaps one of the biggest merits of the debt consolidation mechanism is the fact that you have to deal only with a single creditor rather than having several on your back. The payment plan is created by an outside company after assessing your debts, and they disperse the funds to all lenders involved. If you own a small business and have multiple lines of credit, handling that many bills every month could get really strenuous. Consolidating your loans will cut down all the phone calls and demands and also ensure that you do not fall any deeper into debt by missing any payments.

Lowered Interest Rates

Resorting to debt consolidation would potentially decrease the interest rates for all loans you have taken because it is like taking a new loan to repay the existing ones. This usually has a drastically lower interest rate so that you are able to pay it back easier.

Demerits of Debt Consolidation

Debt consolidation is one of the best loan repayment options; it does have certain drawbacks, like:

Payments Extended

Resorting to consolidation could lead to your loan term being extended. Many firms, under the guise of better rates, are actually just extending the payment period, which means your installments would be small but you pay a lot more as interest in the long run.

A Temporary Solution

One of the major demerits of debt consolidation seems to be the fact that it is considered predominantly as a temporary solution for a permanent issue. Even though debt consolidation effectively lowers your interest rates and monthly payments, it does not eliminate the permanent and fundamental issue that your business seems to be spending far more money than it is actually taking in. In many cases, it is mandatory for some small businesses to alter their current strategies for boosting cash flow. It is a good idea to change your existing financial habits to stop yourself from getting into any further debt.


If you are thinking that debt consolidation is the best for your small business, you could consider doing ample research before you commit and dedicate yourself to any consolidation strategy. You must consider evaluating meticulously loan terms and interest rates and avoid all options that involve secured loans that would be requiring you to offer your property or your own savings as collateral. Just in case, you have failed to repay your loan, secured loans could cost you your house or even business.

Read related contents by similar tags: