The rise in the number of lenders in the market place and the ability of business owners to get finance with almost the click of a button has both a positive and a negative impact.
Whilst these businesses are raising finance to support their business, there is often a worry that they are using loan payments in the place of increasing sales or controlling escalating costs.
Over the last few months we have seen a few businesses that have taken out numerous loans from various places without taking advice, in some cases they have been subjected to daily payments and at astronomical rates.
Whilst we are not disputing that there is a need for these lenders, we would like to highlight that with a clearer thought out plan these businesses could structure the loans much more cost effectively, saving money both in the short and long term. But more importantly, not potentially cutting themselves off from more lending opportunities in the future.
If this is you or someone that you now then there is a potential solution; Debt Consolidation
Debt consolidation is an effective way for businesses to restructure existing, expensive forms of business debt from lenders, corporate credit cards, creditors, suppliers or collection agencies.
It's a process whereby a single, larger loan is taken out to pay off multiple smaller debts. This can either be through secured borrowing against an asset, such as a property, or through further unsecured borrowing.
It's easy to get into financial difficulty if you have too many credit commitments to keep track of each month, or because cashflow problems or sudden unexpected expenses mean you are unable to keep up repayments on short-term, high interest debts.
The main benefit of debt consolidation is that it allows the borrower to improve the liquidity or cashflow of their business and it can also reduce administration costs, especially if the company has multiple creditors to service each month.
The benefits of debt consolidation
Potential savings: If your new rate of borrowing is lower than your original rates, you can reduce the overall amount you have to pay back. Repaying over a longer period could also bring your monthly payments down.
Reduced admin: If you have several debts spread across different lenders, debt consolidation will reduce your administration. You'll only have one creditor to work with, rather than juggling the repayments for multiple sources of business finance, like credit cards and invoice factoring. By bringing them into one place, you can free-up time you'd otherwise spend dealing with creditor calls and emails and may also be able to reduce your admin costs.
Greater efficiency: Your debt will be in one place, so you can keep track of your finances more easily.
Clearer budget: Having one monthly repayment should make it easier for you to stick to a monthly budget.
Potential to boost your credit score: Streamlining your bills should reduce your chances of missing a repayment and therefore have a positive effect on your credit score.
Flexibility: Fixed repayments, or flexible payments to allow for seasonal fluctuations
Getting the right advice
One word of caution. Leading debt charity the Debt Advice Foundation warns that debt consolidation might not be the solution for everyone depending, for example, on your credit rating and other factors. So it's imperative to get the right advice before proceeding along this route.
A commercial finance broker will help you to compare all the options so that you don't jump straight in with another loan until you are 100 per cent happy you've found the right one. Your broker will have access to a wide range of alternative finance providers so you don't have to rely on the high street banks.