Balance transfer and consolidation loan terms must not have been unfamiliar to you. They are both used as a means to reduce the size of repayments and ease the stress. Some people presume that they are only suitable for individuals but not for entrepreneurs. The good thing is that if your business is also struggling to keep up with debt repayments, you can consider business consolidation loans.
Both balance transfer and consolidation loans are different, although they both intend to make heavy repayments smaller. The former is aimed at credit card debt, and the latter is aimed at other small high-cost business loans. It is obvious to look at these deals with a pinch of salt if you have never considered these solutions before, but they could prove to be viable.
Business debt is common. You may need to borrow money to fund the initial cost of your business, or you might need it to expand it. Business loans are expensive than personal loans. It is vital to ensure that your business does not struggle to meet operations, but the business world is dynamic. Unexpected expenses often lead to disruption in a smooth cash flow, and if you are already struggling to meet repayments, this will add to your business complications. Fortunately, you can use business consolidation loans and a balance transfer.
What is a balance transfer?
Credit transfer is planned to address credit card debt. Business credit cards are way convenient than business loans. They are easy to get approval for as long as your trading history and your credit rating are remarkable. Once you have accepted a credit card, you can utilise it as and when you require funds. If you have a lot of credit cards, you tend to fall into credit card debt quickly.
There is nothing wrong with using credit cards to meet business expenses, but bills must be paid in full on time. If your industry is labouring to save up with credit card debt, you should consider a balance transfer card.
Balance transfer is a process of moving a balance from one or multiple cards to another one, typically a 0% APR card. A credit transfer card arrives with a grace period, depending on the lender’s policy. You do not have to pay interest until that period is over. You can save a ton of money if you manage to settle the whole of the debt completely within the interest-free period.
Advantages and drawbacks of balance transfer
Here are the pros and cons of a credit transfer card:
| Pros | Cons |
| A 0% APR will help you avoid interest payments if you pay off the credit in total within the interest-free period. | You will have to pay down balance transfer fees, which could be up to 5% of the total consolidated debt. |
| You will have an easier time paying off the balance, yet no interest will be accrued. | After the end of the promotional offer, you will be back to standard interest rates. However, if you have paid off the balance within the introductory period, no interest is to be paid off. |
| You can consolidate numerous credit card obligations into one card, which makes repayments much easier and stress-free. | An affordability check will be run to decide how much balance should be transferred. There is a chance of losing your credit score. This will deteriorate your ability to borrow funds at lower interest rates down the line. |
| There is no guarantee that the whole credit card debt will be transferred to a 0% APR card. |
What is business debt consolidation?
Debt consolidation loans from a direct lender are unsecured loans which you can take out in order to settle your outstanding debts. If your business has several outstanding debts, you can consolidate all of them into one large loan. This will make it more leisurely for you to pay down your debt. It is common for several businesses to have racked up business debt. In this situation, you can consolidate all of them into an unsecured business loan.
The good thing about these loans is that you will have to pay down the debt over an extended period of time, but there is more to it than meets the eye. Even if your credit rating is stellar, you are not always in a position to get the whole debt consolidated. This is because your lender will evaluate your current business profitability.
Bear in mind that interest rates will be revised and calculated based on your business situation. It is likely that your lender does not find you competent enough to discharge the whole of the debt. In such a strategy, you will probably be able to consolidate fewer debts. It suggests you will have to pay the rest of the debt separately.
Upsides and downsides of business consolidation loans
Here are the upsides and downsides of business consolidation loans:
| Advantages | Drawbacks |
| You will be able to qualify for a lower APR provided your business credit rating is good. | You will have to pay origination fees. This could be up to 12% of the total loan amount. |
| You can get a prequalified offer without hurting your credit score. This will help you know the estimated loan amount and interest rates. | It could lead to other debt because now if you do not cease to borrow more money for your business expenses. You will not be capable of getting out of debt. |
| All repayments will be fixed. You can easily budget around repayments. It is easier to discharge debt in fixed instalments. | It is not likely that you will always qualify for lower interest rates, even if your credit rating is good. |
| It can enrich your credit score, provided you pay down the whole debt on time. | A lender is not obligated to consolidate all outstanding business loans. |
The final word
A balance transfer card and business consolidation are not the same, although they both intend to combine all outstanding debts into one single loan. Though they help ease business loan repayments, it is still enjoined that you carefully compare interest rates and your repayment capacity.
