An accountant may recommend a business loan consolidation to a small business for a number of reasons. In general, the accountant wants to simplify the client’s business affairs, so a business loan consolidation definitely accomplishes this task. But just as important, an accountant may recommend debt consolidation to demonstrate professional competence as well as appreciation of the client’s financial situation.
The primary reason for recommending consolidation is that it delivers benefits to small businesses. Whether it helps a business reduce its interest costs, improve its supply chain management or even to reduce its overall business tax liability, a business loan consolidation offers the opportunity for overall improvement.
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One major reason is that it can simplify financial reporting and accounting. By reconciling debt service journal entries among various lenders and loans, a small business can save money on interest costs and ancillary fees. Instead of making many payments, a consolidated loan lets a small business make one large single payment, which may actually be less than what the company was paying before.
Besides saving trees, consolidating business loans allows for a more effective audit and reporting process...
Consolidation can also help boost credit ratings. Wiping out debt on a credit line improves the debt-to-income ratio of the small business. In the future, the business may be able to save money on interest and receive better terms and conditions on any credit lines.
Simplifying paperwork and debt service can save time and money for business owners and accountants alike. Besides saving trees, consolidating business loans allows for a more effective audit and reporting process that may cut tax payments and even reduce potential liabilities.
But loan consolidation does have its own drawbacks. Not every situation warrants it. Consolidating debt should be considered on a case by case basis, especially for seasonal businesses or businesses burdened by a particularly grueling debt load.
Even the benefits of consolidation must take a back seat to other business fundamentals. For instance, if a company requires capital to make it through its slow season or if a company suddenly has an emergency, it might find itself handcuffed as a result of having higher than normal debt service payments.
Money may come and go, but once time is gone, it stays gone.
Small businesses may also find themselves burdened with a longer time horizon to pay down their debt. Money may come and go, but once time is gone, it stays gone. Businesses may be unable to capitalize on an opportunity that arises or to adjust adequately to fluctuating market forces, or even to cope with a sudden financial setback.
When you consider consolidating your business loans, always conduct the proper due diligence. Finding the right business loan consolidation lender, reviewing all the fees and conditions, and even just calling the lenders yourself to make sure they actually exist are some of these vital steps.
Business owners must take heed of prepayment penalties, interest rates, repayment options and more. So if your accountant recommends a loan consolidation, be sure to ask why it’s justified. And if it is, then it’s up to you to get all your questions answered. In the end, the only stupid question is the one not asked by either the borrower or the lender.