New businesses and start-ups have been painting a grim picture on the state of business finances in the country. There is much discussion about good debt and bad debt that can influence a company’s cash flow. Now, for any traditional business loan, the lenders do not get a stake in your company. As the debtor, you are entitled to pay your creditors back on time, even in the event of business failure. Sadly, over 90% of the start-ups fail within their first decade. Business loans tend to have a longer repayment period compared to other credits, and the high rate of failure often means that the startup owners end up paying the loan companies out of their own pockets at the end of the payment terms. The situation can be worse for secured loans in spite of the comparatively lower interest rates and better repayment terms.
Is it the right time for your startup to open a new line of credit?
A thorough study of several start-ups has shown that a new loan or even a debt consolidation loan may not be right for a company at all times. In fact, new lines of credit have the potential to worsen a few financial situations for young entrepreneurs. Foursquare is one of the few start-ups that could leverage debt as a tool towards success. Start-ups that rely on loans to become their ultimate savior during a time of long-standing financial crises may wind up in situations tighter than before.
The worst possible time to raise debt is when a startup has almost no revenue. Yes, it is possible for a startup to build debt even with no cash flow through venture connections and recommendations. However, these connections rarely do any good when the time comes to pay the debts off. Thus, the success of Foursquare was an exception and not a norm in the history of start-ups. Visit NationalDebtRelief.com to know if this is the right time for your business to raise debt.
Start-ups owners are not very fond of debt
Today’s financial market is unpredictable, and thousands of start-ups are facing the brunt of a somewhat whimsical economy. The revenues are inconsistent even with sound business models and trained business management experts in the teams. Numerous phases of no cash flow require quick loan options including loans and invoice factoring. These are primarily needed since start-ups need to pay their employees and vendors even when they do not see any profit for weeks.
These debts keep piling up, and there comes a time when there are more creditors than vendors in a company’s contact list. Multiple heterogeneous loans can disrupt a start-up’s regular cash flow and drain them of whatever profits they make. The financial health of startups and micro enterprises often go from bad to worse while juggling multiple debts at varying interest rates.
How can start-ups manage multiple debts and creditors?
The best way for any business is to try for small business administration loans or SBA loans. Meeting specific criteria can qualify your startup for an SBA loan. However, they are not the easiest kind of loans to get. Experts recommend appointing a debt counselor for assessing the financial situation of a startup to begin the management process. If you find out for sure that new loans will help your current startup debt situation, only then should you proceed further.
Now, many startup owners will raise their eyebrows at this step, especially since we have already stated the primary reasons for start-ups to hate debts. At this moment, mentioning a new kind of loan can seem counterintuitive. Nonetheless, you need to consider the proven fact that there are a few types of loan options that can salvage your financial situation.
Are there loans that can help start-ups instead of pushing them down the debt hole?
Some loans can help every startup in one way or another to save more on loan interest rates. First, you must find out how much APR you are paying in a year. You can do this with the help of a loan interest rate or APR calculator, or you can seek the counsel of a non-profit debt counseling organization. Both processes can be free if you can manage to find the correct services. Next, think about consolidating all small and medium loans. You do not have to collate all the outstanding business loans. Consider those that have a high-interest rate and the highest APRs. It will typically include your credit cards, short-term loans, and small quick loans.
Consolidation loan options for start-ups are usually unavailable at banks and credit unions. However, if you have recommendations from members of the credit unions or good relationships with venture investors, they might make it a bit easier for you to qualify for fair term loans from credit unions. Recommendations from reputed parties go a long way when it comes to getting favorable terms.
There are several new companies and online platforms that offer consolidation loan options for start-ups and other small businesses. Start-ups with higher risks and lower revenues often do not have an organized credit profile or an impressive business credit score. In such a situation, you will find it much easier to qualify for lower interest rates and amicable repayment terms at online platforms. Many of the online platforms that you will find with the help of any search engine are genuine, reliable and recommended by many other business owners.
Wrapping things up
To manage your debt, you should always start by assessing your utility bills, vendor payments, and monthly extras. Getting a trained and experienced attorney to file your business taxes and returns each fiscal year may save you a fortune. In most cases, start-ups need help prioritizing their payments and managing their current resources to boost their revenue. A loan against consolidated debt comes after the initial phases of counseling and management of debts. Start-ups might be facing a higher than usual risk level right now, but the presence of new funding platforms has ensured higher chances of success for each one of them.