Small business debt consolidation is a debt solution that can take two forms. The first is a process of consolidating debt that is similar to the process used to consolidate individual debts. The second form is to go through a consolidation company that can negotiate with creditors on your behalf in order to get a better payment plan and allow your business to get rid of debt in such as way that benefits you and your creditors. Each of these forms has its own disadvantages and advantages that you need to consider before you start small business debt consolidation.
The most common method of resolving debt for the small business is to work with a lender who secures a loan in order to take care of all your outstanding financial obligations. After consolidation, the lender will establish a repayment schedule that lets the debtor make a single monthly payment until the loan is paid off completely. This option is the best choice if you need to save money in the end since the consolidation loan will often have a single interest rate lower than the combined interest rates on your debts. In addition, a vendor account with a zero balance is a good credit reference, which can help draw more customers to the business.
However, this type of consolidation for small businesses isn't always the ideal situation. If your vendor accounts currently have no interest or a low interest rate then retiring these debts could cost the company a lot more in the end. There is also the added risk that the business will start up new balances on the vendor accounts which creates additional financial hardships for the business. If a company is struggling to make minimum payments on time and continues to reuse vendor accounts then the businesses financial state can get substantially worse within just a few months.
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