The Federal Reserve raised interest rates earlier this year, and they’re projected to make one or more additional increases later in the year. While that doesn’t sound like a big deal, it’s the sixth time this organization, also known as “The Fed,” has raised rates since 2015. Then, interest rates were at an all-time low (nearly zero), and while these increments seem small, they can have a big impact on long-term costs. So, before the next hike, you may want to reevaluate your businesses current financial situation. Is now the right time to explore debt consolidation and/or refinancing?
What is debt consolidation?
Starting or expanding a business can take a lot of liquid assets, which you may or may not have at the time. Many business owners finance these endeavors with loans and/or cash advances—potentially from different sources. Debt consolidation combines these into one loan, with one (hopefully fixed) interest rate. Ideally, this endeavor will lower your monthly payment and save you accounting time each month, since you’ll only be reconciling one account rather than many.
Unfortunately, that also means you’ll have to review the terms of several different loans before you can begin this process. Some loans have penalties for paying them off early, such as being charged the full amount of interest expected, even if your term is shorter. You’ll need to know about these additional costs so you can factor them into your new loan, if need be. Additionally, it’s a good idea to have an experienced lawyer review the fine print of the original credit agreement.
Be aware that some lenders may try to drag out the repayment process in an attempt to extract more interest. So, either you’ll have to stay on top of it, or your lawyer can intervene to act on your behalf. Either way, having a professional on your side can expedite the process considerably, and free up your monthly funds for other business ventures.
What is refinancing?
While similar to debt consolidation in some ways, refinancing usually involves just one loan—not many. Essentially, here you take out a new loan to pay off the remaining balance of the original one. This only makes sense if the interest rate of the refinanced loan is lower than the previous one. So, if you took out a loan in 2015 or later, this probably isn’t the right step for you.
It can also be a good solution for business owners who took out variable-rate loans. Those were attractive when interest rates were lower, but now that they’re starting to climb, it’s a good idea to lock in. That way, you can estimate your costs for the rest of the life of the loan.
As with debt consolidation, you’ll want to look closely at the fine print and uncover any potential penalties for paying your original loan off early. If this is your first time exploring such an option, don’t leave all of the details to the mortgage or banking industry. This is still a legal transaction that can involve thousands, or even millions, of dollars. Having an experienced lawyer to represent you throughout the course of the debt transfer can save you a lot of time and money, in the long run.
At the Law Offices of Kirk Halpin & Associates, P.A., we handle business lending transactions all of the time. Before you finalize the details of either debt consolidation or a loan refinance, consult with one of our knowledgeable attorneys. They can advise you on the limitations of your previous contracts, and even help you secure future financing in a timely manner. Now’s the perfect time to reevaluate your business debts, with the Law Offices of Kirk Halpin & Associates representing your best interests.