Business debt consolidation refers to the practice of consolidating multiple business loans into a single loan. All businesses obtain loans from multiple sources and routinely use credit cards. When things go bad, especially in times of recession, businesses find it tough to repay interest and principal that’s due on their multiple debts. Such businesses can either file for Chapter 11 bankruptcy (reorganization) or opt for business debt consolidation.
Business debt consolidation can help a business stave off bankruptcy, reduce monthly repayments, and get more time to repay off their business debts. Debt consolidation typically converts short-term debt into long-term debt – it can also involve invoice factoring or swapping long-term, high-variable-interest debt into long-term, low-fixed-interest debt.
A business can easily find a business debt consolidation expert, but must choose one with care. These experts can help the business manage its debts and come out of the hole it finds itself in. If your business needs debt consolidation, here’s what you should do:
1. Make the complete accounting picture. How much does the business owe, to whom, how many lenders, what are the interest rates, what is the period of each debt, when are the installments due, etc. – answers to these questions will provide the business with an accurate debt scenario. The business can also use an online debt calculator or ask its accounting department to create a report.
2. The next step is to figure out the revenues and the percentage of revenue that can be used to pay off debt without impacting the business operations.
3. Next, prepare a list of assets that can be sold to repay the debts. Also, figure out debt collection strategies from your own debtors who have not been regular in their repayments.
4. Steps 1-3 above will help the business understand the financial shortcomings and the problems it will face in the long-term if it does not consolidate its debts or reorganize them (Chapter 11 bankruptcy).
5. The next step is to appoint an experienced and reputed lawyer. Negotiating with creditors and interpreting state and Federal laws is best left to professionals who understand the intricacies of a debt consolidation process.
6. Now, you have to work together with your lawyer, prioritize debts, and make a sound strategy. Understand how one consolidated loan can impact your finances and stretch your repayment period. Select a debt consolidation plan that works best for your business, especially in these tough recessionary times.
7. Your lawyer can also help by talking to creditors. For all you know, he may convince some creditors to knock off unpaid interest or compounded interest from the outstanding debt.
This is how business debt consolidation works. As mentioned earlier, procedures like these are best left to legal and financial professionals because even a minor miscalculation can damage your business’s recovery process.
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