5 Reasons to Use US to Alleviate Your Debt

Debt is almost unavoidable as a business owner - and for good reason. Taking on debt can give you the financial flexibility to invest in business development resources, say yes to growth projects, buy new equipment, or hire additional employees. 

However, if you're not smart about budgeting, you risk missing payments, racking up more debt in interest fees, and stalling your business growth. 

Fortunately, you have options. If you're overwhelmed with your business debt, there are steps you can take to reduce your debt or alleviate some of the pressure around it. Here are two of the most common options for reorganizing your debt. 

Refinancing debt vs. consolidating debt

Many business owners looking to fix their debt consider refinancing or consolidating. Both are good options, but they have different purposes and benefits. 

Refinancing is when you replace one or more existing loans with a new loan that has a different interest rate, principal amount, and payment timeline. Most business owners refinance their debt to try to score a lower interest rate. You have a better chance of getting a lower interest rate on a new loan if you've boosted your business credit score or business profits in the last year. 

Refinancing might be right for your business if:

• Your debt has become unmanageable 
• You want or need a lower interest rate
• You've improved your credit score or business profits

Consolidating debt, on the other hand, is when you combine multiple loans into one single loan to streamline your payments. Combining your loans doesn't necessarily give you a more affordable rate; the primary reason business owners consolidate debt is to make their monthly payments more manageable and less time-consuming. 

Consolidating might be right for your business if: 

• You're stressed about managing multiple payments 
• You're at risk of missing a payment due to overwhelm
• You want more time to focus on business growth

3 options for consolidating or refinancing your debt

If you're considering debt consolidation or refinancing, you have a few options for where to get a new loan. Keep reading to find out what makes the most sense for you. 

1. Apply for a bank loan

You have a better chance of getting approved for a bank loan if you've received financing from the same institution in the past. Plus, banks offer lower interest rates than many other types of loans, ranging between 2% to 5%. 

However, it can be more difficult to qualify for a traditional bank loan, particularly if your business credit score is suffering from multiple forms of credit. 

It would be best if you also considered the timing since applying for a bank loan can be a lengthy process. If you're at risk of missing a payment or feel too overwhelmed with debt to juggle your regular workload, then you may not be able to wait many months to receive a response from the bank. 

2. Apply for a Small Business Administration (SBA) loan

The SBA offers a few options for refinancing, including the popular 7(a) loan, which business owners can also apply toward working capital, equipment, or big purchases. If you're approved, you can borrow up to $5 million with loan terms of up to 10 years. The average interest rate for a loan backed by the SBA is between 7% and 10%. 

However, it can be hard to qualify for SBA loans. The SBA typically looks for business owners who have business credit scores of 680 or higher, no bankruptcies in the past three years, a history of steady or increasing revenue, and at least a few years of operating experience. You may also have to put down a 10% payment for refinancing loans. 

3. Consider a loan from an alternative lender

Applying for a refinancing or consolidation loan from an alternative lender tends to be faster and more affordable than going through traditional lending institutions, especially for business owners struggling with debt management. Many alternative lenders use a combination of human expertise and advanced underwriting software to speed up the approval process. 

Plus, it's generally easier to apply and qualify for loans from alternative lenders. You don't need perfect business credit, nor do you need to gather piles of paperwork to complete an application.