How are startups finding new avenues to survive and succeed with business loans?

Credit cards are a fine way to pay for new equipment. It is a powerful piece of simple plastic that has the power to buy the world. Be it urgent plane tickets for a business conference or a conference hall booking for an investor meeting; these credit cards can make anything happen with just one swipe. When the time comes to take a look at the final payments, it becomes a real-life nightmare. Since business credit cards and even small business loans offer almost endless purchasing power to the startup owners, most credit card users keep swiping without realizing the surmounting debt they will have to pay at the end of the month to keep their credit scores afloat.

The bliss and burden of business credit cards

Business credit cards offer a way to keep the business finances and personal finances separate for everyone. Over 50% of the startup owners and small business entrepreneurs have business credit cards because they are convenient and offer instant salvation for difficult financial situations. The risk becomes prominent when the small business owners and start-ups start spending tons from credit cards without understanding the terms of repayment, rates of interest, the imposition of penalties and the monthly charges. Most importantly, most business owners do not realize that business lines of credit are not a part of the Credit CARD Act, 2009. Therefore, they often face surprise interest hikes and penalties for lapsed payments or deferred payments.

One way to manage business finances is to let a professional take a look at your expenses. Sometimes, start-ups find it easier to save a few thousand dollars each month by simply redistributing their credit card payments. Since most SMEs handle more than one credit card, it becomes difficult to keep a track of the multiple payments that the card companies demand each month. It often requires recurring payments each month, involving several interest rates and varying APRs. Calculating the APR for each small business loan and credit card loan becomes too daunting for a startup with their limited resources. Most start-ups do not have separate finance departments that can handle the several monthly payments due to multiple short-term loans or small business loans.

The better way to manage outstanding lines of credit

The smarter idea is to collate all the outstanding debts into one. You can combine all the debts you currently have irrespective of their payment periods and the number of installments left. You can combine 2 or more debts with different interest rates and APRs into a single big loan. It sounds like trading multiple loans for a fresh loan that is evidently bigger, but that brings down the number of monthly payments to just one. You get to pay just one company (the start-up business debt consolidation loan company) at a flat interest rate and a flat APR each month.

  • Unlike debt management and debt settlement, debt consolidation does not attempt at negotiating the installments or outstanding payment value with your creditors.
  • Debt consolidation loan companies do not ask you to stop making your monthly payments.
  • You can pay off your outstanding debts with the consolidation loan amount and find additional capital to fund new projects.

Your basic goal is to lower the monthly payments. Once you decide to apply for a debt consolidation loan, do not forget to find out if you can afford the new payment. Consolidating your existing lines of credit will be futile if you are unable to meet the payment requirements each month. After all, you are just shifting the weight of your debts around to make the load more bearable. It is just shifting the pile of debts from an unmanageable place to another that offers friendlier payment terms.

Factors every debt consolidation company considers before approving loans for start-ups

Not every startup survives in spite of the existence of such alternative financing options and debt management procedures since debt consolidation loan comes with certain qualification criteria irrespective of startup’s target market.

  • Any debt consolidation company will first check the applicant’s credit history. A credit score of 750 and above is excellent, but since most companies approach loan companies because of their dire financial mess, most consolidation loan companies approve loans for applicants with FICO scores of 650 and above.
  • You can find online lenders, who offer loans to start-ups with less than perfect credit score. However, check their repayment terms very carefully. Consult an expert to find out the resulting APRs and research the interest rates before committing.
  • Depending on your business profile, you can get loans from $10,000 to $50,000 from the multiple lending parties out there. Even banks and credit unions offer small business and startup consolidation loans. Clean payment history will increase your chances of landing a better offer.
  • Your company’s financial stability or cash flow over the last few months will also determine the outcome of the application process. Just as in case of individual applicants, the financial history of a new business or even an old one determines the loan amount, interest rate and repayment terms.
  • The repayment is another factor that depends on your company’s financial profile. Some business debt consolidation companies lend money to start-ups by accelerating payment plans. Extending the repayment term will depend upon your personal and business finances. In fact, an extension of the term can also result in higher overall APR.

Wrapping things up

Most financial institutions, finance experts, and blogs will have you believe that qualifying for a new loan that can consolidate your payments is easy. However, there are chances that you might not qualify for a loan right now. There is no need to become crestfallen and lose all hope since you can always ask the lender for the reasons you did not qualify. If the reason is as simple as a poor credit score, you can always ask a non-profit credit counseling company to help you build an impressive business profile with healthy credit scores for future loan applications.