Why consolidate?

John owns a chain of florist shops.? He took out three cash advances over a period of three months for his business.? He owes $650K in total on these advances and the payments are consuming 40% of his current cash flow.? There are five months left on the terms of two of these obligations and six months left on the third. ?John is worried that he’ll be unable to continue servicing these debts.

Sally owns an office furniture manufacturing business.? She took out three credit cards years ago and maxed out her available credit almost immediately.? She owes $75K on each card and pays them down just enough each month so that her new charges can go through.? She also has a $500K balance on the note given to her by the previous owner when she bought the business two-and-a-half years ago.? The note required interest-only payments for 36 months with a balloon payment due at the end of the term.

George is a retailer with several maxed-out credit cards and multiple unsecured term loans with high rates of interest.? He owes a total of $180K on his credit cards and $425K on his loans.? He’s planning to expand operations in the near future and estimated that he’ll need $200K in capital to execute his plans.

?

All three owners will likely find a consolidation loan to be the best financial tool to resolve their debt/cash flow issues---a good consolidation loan would lower their monthly debt service by providing a combination of better interest rates and longer terms.

This is what they should consider when reviewing consolidation loan options:

·????? Term- A longer term provides the best opportunity to lower payments.? Whenever a short-term debt (due in less than a year) is refinanced over a multi-year term, the payments drop dramatically.

·????? Rate- Given that consolidation loans are typically used to refinance high-rate debts, most will provide a reduction in rate.? Generally speaking, low-interest obligations like an SBA EIDL loan should not be refinanced because they are such a good deal.

·????? Ability to Be Approved- The features of a consolidation loan are only relevant if you can be approved by the lender.? Credit histories (both personal and business) will play a role in your approval as will the size of the consolidation loan relative to the gross revenue of your business.? Borrowers must also demonstrate that they have the cash flow to cover the proposed consolidation loan payment.

·????? Processing Time- Some businesses may need immediate relief from their high debt payments while others may not have as much of a financial emergency.? Processing time for loan approval/disbursement, therefore, is another factor that must be considered.

An SBA 7a loan can be a great choice for debt consolidation but there are other options that should also be considered.? An experienced broker who knows the different programs as well as the eligibility criteria can help you make the right choice.? I’ve helped many clients with consolidation loans---feel free to reach out if you want to talk.