Debt consolidation can be a way to fast-track your journey to financial stability. It’s a great way to handle personal credit card debt—but did you know you can consolidate business debt, too? Here’s a closer look at the process of business credit card consolidation so you can decide whether it’s right for you.
How Does Debt Consolidation Work for Business?
Debt consolidation for business works a lot like personal debt consolidation. Here’s an overview of the steps involved:
Step 1: Determine How Much Debt You Have
This is an important first step. Take a look at your credit cards, their balances, and their interest rates. Adding up your balances will show you how much you need to borrow. And when you know your interest rates, you can make sure to only accept a loan with better terms than your current cards.
Step 2: Take a Look at Your Credit and Finances
Depending on your business’s history, you might have a business credit score as well as a personal score. Some lenders may prioritize one over the other, but they generally look at both.
Finding current business credit scores is sometimes harder than finding personal scores. However, it’s worth the time and effort. When you have up-to-date personal and business credit scores, you’ll have an easier time finding loans you qualify for.
Step 3: Research Lenders
Before you start applying for loans, take some time to investigate lenders. Depending on the amount of money you need and your credit rating, you may have many lenders to choose from, or you might find only a few possibilities.
It’s especially important to make sure any loan you take has a lower interest rate than your existing business credit cards.
Researching lenders and selecting one can be challenging. You might wonder, “Can I get an SBA loan to consolidate debt?” The SBA (Small Business Administration) offers a few different types of loans for small business owners.
The SBA’s primary loan program is the 7(a) Loan Program. You can take out a 7(a) loan for a number of different purposes, including business credit card consolidation.
Step 4: Apply for Loans
Once you’ve picked out a few promising lenders, you can start applying for loans. You’ll probably need to include the following documents:
- Financial statements
- Tax returns (personal and business)
- Your operating agreement or articles of incorporation
- Cash flow statements
- A list of current business debts
- Your business plan
Depending on the specifics of your company, you might need additional documents. For example, if you have a physical location, you’ll likely need to provide your commercial lease agreement.
Step 5: Pay Off Your Business Credit Cards
If you’re approved, your lender should deposit your loan funds into your business bank account. You can then use those funds to pay off all of your company’s credit cards.
Some lenders may prefer to pay the funds directly to your creditors. If your lender does this, you should follow up to make sure the debts have been paid.
Step 6: Pay Your Loan as Agreed
Once your cards are paid off, you’ll just have to make one monthly payment to your lender. Make all payments on time and in full to build business credit and avoid financial penalties.
Is Business Debt Consolidation a Good Idea?
Business credit card consolidation is often helpful, but it’s not without downsides. Before making a decision, carefully weigh the pros and cons. These are some of the advantages of consolidating your company’s credit cards:
- With a lower interest rate, you’ll pay less over time
- You might get out of debt faster
- Rolling multiple payments into one is more convenient
- Your monthly payments may be lower
You should also keep in mind some of the potential disadvantages:
- There’s a chance you won’t qualify for better terms than you have now
- The application process takes time
- If you don’t have good personal or business credit, you might be denied
- Many business loans come with fees
Determining whether to take out a business consolidation loan is a major decision. It might be helpful to talk to a financial or business advisor.
Business Credit Card Consolidation Can Help Your Business Get Ahead
If you’re wondering, “How do I get rid of business credit card debt?” consolidation might be the answer. Under the right circumstances, a business credit card consolidation loan can save you money, free up more of your cash flow, and help your company move into a new era of financial stability.
