debt consolidation loan

Types of Unsecured and Secured Debt Consolidation Loans for Start-Ups

Business

It is not unnatural for a start-up company to acquire considerable business debt. Start-ups usually have a limited amount of money to work with, and they often need additional funding to get things going. That is why almost all startups have some amount of debt. However, problems arise when a business has multiple debts to clear off every month but not enough income to fulfill all the financial obligations.

In such a scenario, debt consolidation comes as the ideal solution. After consolidating the multiple loans into one large one, companies are required to make just one single payment each month that also has a low-interest rate. One single repayment further ensures that the company will not miss the payment. Consolidation loans come in both secured and unsecured form, and a startup company can choose either based on its needs.

Types of unsecured debt consolidation loans to opt for

Unsecured loans are the best option for startups as they do not require collateral. However, a company needs to keep a good credit score for being able to qualify for this loan type. There are several different types of unsecured consolidation loans that startups can choose from. Let’s discuss some of them.

Personal loans

When consolidating multiple debts into a large one, startups can go for a personal loan. Applying for the same in a local bank is a good choice as well. There is no need for excess documentation other than IDs. However, having a high credit rating is essential.

The line of credit

A line of credit is an unsecured loan. Based on your business income and credit rating as an individual, there is a maximum amount you can borrow. Not every random bank will sanction this loan type. Alternatively, if your start-up business is making high profits and you have to obtain a loan for future developments, it will be ideal for you.

Balance transfer

If you want to reserve your credit card transactions for a while, this is an excellent way to save optimally via less or zero introductory interest rates. It is applicable given the fact that you can repay the loan amount before the time ends. This loan type streamlines the payment process with just one bill per month. Consequently, there could be substantial balance transfer charges levied based on the credit card provider. Hence, exercise caution as this might lead you to pay more.

Cash advance

Cash advances are available both on credit and income. Unless you are in an urgent need of money to clear off business debt, the cash advance is not suggested as an option. Here, the rate of interest is much high. Also, as opposed to your credit card debt, you should pay off the cash advance amount before the following billing cycle. To know more about this, you can browse through debt relief sites and get useful details.

Term loans

Banks and many financial institutions provide term loans. This type of loan comes with a unique repayment process that can be monthly, weekly or bi-monthly. The interest rate also keeps changing based on the overall credit score.

Peer to peer loans

If you are struggling to find support from the traditional lending institutions, you may try P2P lending. Numerous platforms can help you get in touch with potential lenders with whom you can negotiate a deal. Even though bad credit score is synonymous with high-interest rates, the lenders will accept or reject the loan proposal. One benefit you get to experience here is the process of loan is fast. There are websites and mediators who get this done and sanction a loan within 24 hours.

Payday loan

It is a type of loan where people borrow money to clear off the unpaid costs till the cycle of their following paycheck. This type of loan has gained prominence as it is easy to procure. It is free of excessive transaction costs and a steep interest rate.

Types of secured debt consolidation loans

Usually, a secured loan is one where a start-up business will have to present an asset, such as a car, home or any other of his belongings as collateral. The terms of it are simple. Just in case the start-up business owner is unable to pay the loan amount within the stipulated time, the bank or the financial institution has the right to claim ownership of the asset. Here are two prominent types of secured debt consolidation loans.

Home equity loan

A crucial mistake most individuals make with home equity loans is that they hope to get the total monetary value of the house. You need to evaluate your residence equity minus the amount that is owed to the current value and mortgage. Based on your overall financial history and credit score at best, you will attain 85% of your home’s equity value.

The Home equity line of credit

HELOC, which is home equity loan and home equity line of credit are close to one another as a business owner will be procuring it with the home equity. However, there are a couple of differences. Users do not usually get the whole amount, and they can only withdraw funds as and when they need. Second, the rate of interest varies from time to time. It means the monthly payments can increase or decrease based on the economic changes. Furthermore, you are entitled to pay the interest on the amount that you have borrowed.

In the world of fluctuating expenses and changing economies, a start-up company can be in need of additional capital to expand the business or to clear off the business credit debt, with which it started off. Opting for an appropriate loan is essential as it ensures quick and easy repayment of debts. The various types of debt consolidation loans are useful in letting start-up business clear their debt through one monthly payment and with low interest. If you are thinking of consolidating your debts, make sure to research thoroughly before signing a deal.