Smart startups need to stay out of debt. By using these debt consolidation tips we are going to be sharing in this article, you can experience exponential growth in your business.
Startups almost always start out small. With only a few brilliant minds, minting hopes and dreams. It sounds cool until you realize that those few brilliant minds are taking care of all aspects of the business. Startups have more workload in comparison to established corporations and enterprises. Running a business independently takes a lot of guts and foresight.
Even with all the correct ingredients, the recipe does not turn out as expected. From somewhere insurmountable debts seep in. This adds to an extra headache and further draining of funds. If that is not enough, most small businesses have to pay off multiple creditors around the month with different premiums and various interest rates. Slowly, the debts claim more importance than the actual business, and there is a significant shift in focus. Soon the startup founders end up scrounging for every penny to make ends meet.
Is there a better way to manage the debts? Bargaining and negotiating with the creditors often have adverse effects on credit records. It does not do much to reduce the interest rates either.
Smart startups are staying out of debt with these debt consolidation tips.
Become more organized
Start by prioritizing your bills and payments. It is a given, most credit card companies charge an exorbitant amount of interest. Immediately stop using the costliest of them and try to pay them off as soon as possible. At the same time, look through your utility bills. Is there one light or one desktop that you can use less to save a significant amount. Introduce an “Earth hour” in the office if necessary. During this, no employees should use electrical appliances that use power directly. Payrolls and taxes should stick on top of your list every time. There is no way you can escape this financial maze by not paying either of them. Then collect other smaller bills and c. You may not realize, sometimes, these will help you file your tax returns. You can save hundreds of bucks at the end of the year by being organized.
Try debt consolidation
You always have the option of consolidating your loans before they start spiraling out of control. You need to take care of the administrative, management and accounting aspects of your business. Outsourcing your debt worries to a reliable company is a brilliant way out of the mess. There are a few criteria you must fulfill to get a loan from the leading consolidation companies in the country.
- Your business must be at least six months old
- You must have a sound credit score of about 500 or more
- You must show a real annual turnaround
The criteria can vary slightly from company to company. Banks and credit unions have much more stringent requirements, for example – both demand a credit score of over 650 and at least one year of business experience. Since most startup owners are already in a quagmire of loans, you are expecting to have a credit score that is not as high, but still acceptable.
What are the advantages you will enjoy after opting for a consolidation loan?
Debt consolidation and the loan comes with its own set of benefits for every business. Here’s a set of advantages all start-ups enjoy –
Lower payments: This is the first advantage every business enjoys once they collate their smaller loans into a large one and take out a sum to pay off all their lenders at once. If any of your creditors have a pre-payment penalty, you can speak with your consolidation loan company to pay them monthly or according to the term of your repayment. With only a single loan to repay and an extended repayment period, most businesses get the breathing time they need to stand around.
Buy more time: Consolidation loans have a typically lower interest rate. Although the net sum seems quite large, you can easily pay the amount over 5-10 years. This time of repayment depends upon your loan sum and other terms and conditions of your company. The typical time for smaller consolidation loans is 2-4 years for start-ups.
Get extra cash: Who does not love some dough? Especially since you are already in a financially sticky situation, this additional funding will help you move on to your next project. Most loan consolidation companies do not just pay off your existing loans; they make sure your business can move forward so you can pay off the debt consolidation company gradually as well.
Things to do on your post-consolidation days
When you are trying to get out of debt, it is a smart idea to keep your credit card transactions to a minimum. The first loans you need to collate are your credit card loans since they usually have the highest rates of interest. We get it; it is extremely convenient to use a piece of plastic to buy anything and everything you want. However, you will again end up paying more than one loan if you incur a high bill for your purchases. Credit cards can help you work on your credit score, but so do pay debts on time. Use them for small purchases, like at the gas station or the pharmacy. Designate situations where you will just use your credit card and nowhere else. This will keep your card active, add to your credit score and keep your bill to a minimum.
Wrapping things up
While you are choosing your debt consolidation company, make sure they have experience with startups. Not all understand the specialized needs of a startup. Check for testimonials and genuine reviews. Look for debt counseling as well. This will help you find a better solution to your financial situation. A legitimate company will not try to force a consolidation loan on you, before trying to reorganize your bills, payments and income options. In the end, work hard to get out of debt and work harder to stay out of it.