By Isabella Rossellini
What happens when you find yourself buried under unpaid bills and defaulter notices every day? You can either go for the declaration of bankruptcy or you can take a smarter way out and go for business loan consolidation. However, when is loan consolidation the real smart way out? Is loan consolidation always profitable? What are a few scams that you should always watch out for? Is there another option that is right now available for you, but you can’t see it?
Here, we will proceed with the assumption that you know what a debt consolidation loan is. And we will try to answer all these questions about loan consolidation options before you need to make a business decision.
Who offers debt consolidation loans?
There are different financial organizations and unions who are known to provide debt consolidation advice and loans. Here are a few debt consolidation options most businessmen have trusted over the last few decades –
- Banks: this is the most common financial institution that can offer your legal, monetary help in sticky financial situations. Getting consolidation loans from banks may be difficult if you don’t have a squeaky clean business record. Wells Fargo, U.S. Bank and PNC are known to give out secured and unsecured debt consolidation loans to businessmen with good credit histories.
- Credit Unions: they offer consolidation loans with 12 to 60 months terms. They often offer discounted but fixed rates of interest for the new loan amount. For example – at the Western Federal Credit Union, a member can borrow up to $50,000 and he has to pay 0.25% less interest rates than the nonmembers.
- Payday lenders: well, this is the most dubious of the lot as these lenders won’t see your credit score or your payment histories. Payday lenders can charge notoriously high interest rates (sometimes to the north of 15%). The repay windows can be ridiculously short; sometimes as short as a few weeks. If you need a small amount of money (say a couple of hundreds) in a very short notice, you can try borrowing from these people. We will strongly advice you against borrowing from payday lenders in case you need large amounts, especially for loan consolidation purposes.
- Peer-to-peer lending: Peer-to-peer lending services are very common right now, thanks to online verification and transaction services. P2P lending services offer large sums of money for debt consolidation purposes. There are reliable sources like Lending Club and Prosper that offer large sums of money with low interest rates. You may be allowed to borrow as much as $32,000 at one go from these sources. Interestingly, the rates are dependent on your credit history. If you have excellent credit you can experience an interest rate as low as 6%. But if you have a terrible credit history be ready to be charged exorbitant amounts as interest for your loan sum.
- Specialized lenders: these are usually finance companies who have the ability to pay off your creditors directly. They usually follow this up with regular monthly bills that are sent your way. The interest rates are usually very manageable and hover around 5% for sums as large as $25,000. But sadly, they have credit check processes that are more stringent than most well-known banks mentioned here. So unless you have a speckless credit record forget getting your debt amounts consolidated from these specialized lenders.
From the details above it is apparent that a debt consolidation loan is quite effective and useful. It brings about promises of lowered payments and lower interest rates. But why are there so many businessmen who are afraid of consolidating the existing loans? Why are there people who detest the very concept of business debt consolidation?
Business loan consolidation comes with its own traps and tricks. While opting for a finance advice consultant or a loan management company, you must make sure they are genuine and the offers (loans) will help your business financially. Here are 3 most important pitfalls you should avoid, if you want to make the best of loan consolidation –
- Treating it as the Yo-Yo diet of finances: if you are treating business debt consolidation loans are your cure-all, then you are headed for a massive downfall. Almost 70% of those who opt for debt consolidation loans never make it to the surface simple because they treat the new debt-free life as an excuse to shop till they drop and max out their credit cards. Many businessmen simply fail to recognize that consolidating their loans won’t do them any good if they do not check their spending habits.
- Your consolidation service costs you more than the loan interest rates: in many cases we see small businesses trapped in the claws of finance companies who charge exorbitant rates for their consultation services. This can come in the form of processing fees or as up-front consultation fees while you are taking the loan from the lending parties. In such a case, you should do some window shopping. Get a few more quotes from a few more finance companies to compare their fees, interest rates and other payments.
- NEVER put your house on the line: when it comes to business loans you may be tempted to put your home and other assets on the time, but you shouldn’t. This is guaranteeing the loan amount with a pink slip to your house! But secured loans are a complete different ballgame and you should take professional, unbiased financial advice before you put your most valuable asset at stakes.
If you are having trouble finding consolidation loans or deciding if they are ideal for you, then you should definitely consider these three points before making things official.
Isabella Rossellini is a debt counselor, author and blogger. She is the founder of a popular finance blog and posts regularly about changing scenarios in the debt consolidation loan universe. Follow her blog and her profile on Twitter for the latest bites on loans, finances and market statistics.