Debt Consolidation | Small Business Debt Consolidation » BizFly Funding (2024)

FAQs

Is business debt consolidation a good idea? ›

Pros of Business Debt Consolidation

Streamlined payments also make it easier to avoid missing payments, which can damage your credit score and undermine your business. Improved cash flow: Depending on your business' cash flow needs, you may be able to invest the money you save on interest payments into your business.

Debt consolidation can negatively impact your credit score. Any debt consolidation method you use will have the creditor or lender pulling your credit score, leading to a hard inquiry on your credit report. This inquiry will decrease your credit score by a few points. However, this credit score decline is temporary.

Unlike a balance transfer, where you move debt from one account to another, when you get a consolidation loan, the cash is deposited directly into your bank account that you can use to pay off all of your credit card debt at once.

Examples of unsecured debt include credit card debt, student loans, medical bills, and child support. By consolidating all of your credit card debt onto one new card with a high credit limit and introductory promotional rate that's lower than the average rate on your existing accounts, you can save interest.

Consolidation, therefore, may increase the new company's debt load. If not addressed, it can be problematic for the company's management and, ultimately, its shareholders if the company is public. While it may lead to cost-cutting and increased revenue, business consolidation does have a negative economic effect.

You may pay a higher rate

Your debt consolidation loan could come with more interest than you currently pay on your debts. This can happen for several reasons, including your current credit score. If it's on the lower end, lenders see you as a higher risk for default.

The short answer is Yes, people are generally allowed to use their credit cards after debt consolidation as it does not typically involve closing credit card accounts.

The minimum credit score needed to secure a debt consolidation loan ranges from 580 to the mid-600s, depending on the lender. The best terms and rates go to borrowers with scores that are around 700 or higher.

To pay off $40,000 in credit card debt within 36 months, you will need to pay $1,449 per month, assuming an APR of 18%. You would incur $12,154 in interest charges during that time, but you could avoid much of this extra cost and pay off your debt faster by using a 0% APR balance transfer credit card.

Why am I getting denied for debt consolidation? ›

Lenders might not advertise it, but most of them have a minimum credit score required to get a loan. If your score is less than 670, you might be out of luck for a debt consolidation loan. Even if you're over 670, a problematic debt-to-income ratio (more on that below) or payment history could derail your loan.

It binds the information collected into 4 broad categories namely Character; Capacity; Capital and Conditions. These Cs have been extended to 5 by adding 'Collateral', or extended to 6 by adding 'Competition' to it (Reference: Credit Management and Debt Recovery by Bobby Rozario, Puru Grover).

Debt consolidation is a good idea if monthly debt payments don't exceed 50% of your monthly gross income, and you have enough cash flow to cover debt payments. Debt consolidation isn't a quick fix for severe debt problems.

If you default on your business loan — meaning you've continuously missed payments, or have stopped making payments entirely — it will negatively impact your personal credit score, especially if you have personally guaranteed the business loan.

Should I pay off business debt? While operating a debt-free business sounds like an ideal, some businesses find that debt provides their business with a competitive advantage. It may allow them to get inventory using inventory financing, which they can turn around and sell for a profit, for example.

Many small business loans can be used for debt consolidation purposes, but some lenders don't allow it.