Small business owners have far fewer financial resources to turn to these days, because the recession of a few years ago has dried up the flow of credit that was once plentiful. With finances in a pinch, it makes sense to take whatever steps are available to ease the constriction on cash flow and consider long-term business viability, rather than tolerating day-to-day crisis management. One of the avenues still available to business owners is refinancing their current debt load – here’s how it can be very advantageous to your small business.
Credit card consolidation
It can be a huge hassle, trying to manage a whole slew of bills that are due at different times of the month to different creditors. If several of these bills are from credit cards, it might be worth your while to consolidate them into a single payment, to a single company, at one time of the month. It could work to your advantage such that the single payment is significantly lower than the combined payments you were making to multiple creditors.
Lower interest rates
Interest rates are one of the mechanisms that keep you in debt, because a big part of your monthly payment is due to the interest rate. If you can get a lower rate by refinancing your debt, that choking interest rate may finally be relieved. Even a small reduction of your interest rate through refinancing can result in major long-term savings.
Improved cash flow
Cash flow is one of the things most beneficial to your business. By refinancing short-term debt with high payments into a longer-term arrangement with significantly smaller payments, more money becomes available to your business. This can give you capital to invest in the business and have more financial breathing room from day to day and week to week. Financial drains like payroll and slow accounts receivable will be less threatening to your business, and you won’t have to do as much scrambling to meet other business expenses.
Improved credit rating
If your short-term debt is relieved by refinancing, and credit card consolidation evolves into a single, lower payment compared to your pre-financing situation, your credit score may take a nice leap fairly soon afterward. Credit utilization ratio is one of the metrics which factor into your total credit score, and it is assumed that a person who uses more of his/her available credit is more of a risk than someone who uses less. With much less of your total credit available actually being used, your credit utilization ratio will drop, which in turn prompts a rise in your credit rating.
Refinancing your current business debt simply makes great business sense, any way you look at it!