Although it can be beneficial to use it for expansion plans, new equipment, or other developments, sometimes it is more valuable to use it for day-to-day responsibilities. For instance, you could use loans for paying bills or reducing debt. Using small business loans for paying off debt and bills can give you peace of mind. You must pay your bills each month, and it might be difficult to meet these obligations if your sales fluctuate. Similarly, if you have outstanding debt, it could be challenging to consolidate debt while still having money to run your business. Ultimately, utilizing your loan to decrease debt and pay your bills can help you ensure that your business remains financially stable. In this blog post, we'll explain why using your business financing to consolidate business debt can be a wise decision.
The Benefits of Using a Loan to Tackle Small Business Debt Consolidation:
1. Never Worry About Falling Behind On Future BillsHaving unpaid bills can not only be stressful, but it can affect how you run your business operations. If you don’t pay rent, electric, or other utility bills, you could risk having these services shut off. Without them, you won’t be able to properly serve your valued customers. Even worse, if you fall too far behind on payments, you could risk losing your business entirely. In addition, not paying your vendor's bills could put your business at risk as well. For example, not paying off prior inventory bills may cause vendors to no longer work with you. By utilizing loans for paying bills, you’ll have cash flow available when your due dates hit each month.
2. Improve Your Business Credit ScoreIf you’ve accumulated substantial debt, your business's credit score may be suffering as a result. Having bad credit history can be very detrimental, especially if you want to pursue additional financing in the future. It can make qualifying for a business line of credit or loan very challenging. Plus, even if you do qualify, you may be given less than ideal interest rates, loan amounts, and repayment terms. If you've recently received a business debt consolidation loan, you can use it to pay off your credit card balances and other outstanding debts, which will hopefully help raise your credit score. Of course, reducing debt isn’t the only way to raise a credit score, so make sure you check out our post on building business and personal credit.
3. You’ll Have Access to More Cash Flow In the FutureIn a few months, you might decide to invest in new monthly service, hire additional employees, or purchase inventory on your business credit card. Unfortunately, these added costs mean more expenses for your business to tend to. If you're already overwhelmed with outstanding balances, it may not be prudent to take on additional costs. However, not investing in your business could hurt your growth trajectory. By using your term loan to make these payments, you won’t risk running out of money or procuring new debt. That way, you can responsibly pay off your debt, so you can focus on new opportunities going forward.
4. You’ll Get Back Your Business's Finances Back on TrackIf you currently feel overwhelmed by your business's bills and outstanding debt, using your small business loan for this area will help you responsibly manage your finances going forward. By utilizing loans for paying off debt and bills, you can satisfy these obligations and move forward. Of course, once you do this, it is important to work on your financial management skills. To create responsible financial habits going forward, we suggest:
- Following a business budget: By creating a business budget, it will be easier to avoid overspending. Sometimes, business owners overspend simply because they haven't set a budget, and notice they're overspending once it is too late. Plus, it may help you identify unnecessary expenses that you can cut from your budget.
- Making a schedule of bill payments: To avoid missing payment due dates, you should keep a detailed list of when all of your business's bills are due. While some business owners mark these dates on their calendars, you may benefit from downloading a bill payment reminder app, such as Prism.
- Hire a financial advisor or accountant: If you struggle with financial management, it may be beneficial to hire an expert. By hiring a financial advisor, they can help you navigate managing and making the most of your business's finances.
Conclusion: Business Debt Consolidation Loans Could Help Your Business SucceedAfter receiving business financing, you could benefit from using it for reducing debt and paying your bills. Whether you received a business debt consolidation loan, or just went the route of a traditional business loan, lessening debt is pivotal to the future of your business operations.
Editor’s Note: This post was updated for accuracy and comprehensiveness in June 2021.