Debt consolidation process and policies for start-ups

Posted by Marina Thomas on September 20th, 2018

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All most all the start-ups businesses require initial funding due to which they tend to apply for several start-up loans irrespective of the payment policies and the interest rates. Initially, this favors cash flow in the business, but as time passes, it becomes difficult for the business to pay all the expenses and maintain the cash flow in business with less profit and high expenses. Therefore, to avoid business windup and extra debt start-ups opt for debt consolidation loans. However, getting a debt consolidation loan is not easy. The consolidation companies check the eligibility on various parameters, and on that basis, only the loan is granted.

A certain procedure is to be followed, and documentation is to be completed. The following is the procedure for start-ups to apply for debt consolidation loan:

Analyzing the financial status

The first and the basic step is to analyze the financial conditions of the company and then decide whether the loan is actually needed or no and if needed how much will the required amount. This helps to get a clear idea about the capital required.

Application process

Once it is clear about the exact loan requirement, then the start-ups or the entrepreneur can approach any local bank or other financial institutions to get a consolidation loan. One can also apply online websites on leading consolidations companies like nationaldebtreliefprograms.com for debt consolidation loans. Once the application is made the consolidation firms may ask for various documents and the same are to be provided at the time of registration itself. The number and types of documentation may differ from firm to firm and country to country. The rules and regulations related to application and repayment may also vary depending upon the nation's loan policy.

Approval process

The decision whether to grant the loan or not to completely depend upon the consolidation firm. The main factors that play a vital role in the approval process are the credit score and the financial stability. If the credit score of the debtor is poor or below the desired number than the consolidation firm or bank has the whole right to reject the loan application. Also, in the case of a start-up business, there can also be minimum capital or equity share requirement of a company depending upon the rules and regulations of a nation.

Post-approval process

Once all the documentation is proper, and the company meets up the eligibility of the consolidation firm the loan is granted and auto-credited to the company's or entrepreneurs account. After this, the regular payment on installment starts at the decided rate of interest just like any other loan.

The ideal time to apply for a consolidation loan

In order to get consolidation loans approved is it important to apply for a consolidation loan at the right time. It is not shocking news if your consolidation loan is rejected in the initial 2-3 attempts. In very rare cases it happens that the consolidation loan is approved in just one attempt. The reason for this is that many companies apply for it at a wrong time.

For a start-up business, the idle time to apply for a consolidation loan is when the company has passed a milestone or has made a remarkable achievement. For this, the company has to be at least one year old in the market with the expected assets and desired profit ratio. Also, if the entrepreneur is applying for the consolidation loan, then this CIBIL score /Credit should be strong enough to meet up the consolidation company's requirements. The personal debts of the entrepreneur should be less as compared to the business debts, and also the number of dependents on him should be less.

The company's profit ratio should be high enough, so the consolidation company finds the company eligible to repay the loan. Also, apart from this the paid-up equity capital and of the company should meet the requirement of the loan provider.

Entrepreneurs can also apply for debt consolidation loan if they have an increased income and complimentarily have existing loans with high interest rates for a short time. In this case, entrepreneurs can apply for a debt consolidation loan and convert the same debts into an extended low-interest debt.

Steps to choose the right/best consolidation firm

Ratings and reviews

Before approaching any consolidation firms to make sure you check the companies rating and reviews online. The reviews help to know how the company had served the customers earlier and whether the company's working policy will be profitable for your business or know and make decisions accordingly.

Payment policies

The payment policies of a company are always listed on their website or the application form. Please read all the terms and conditions properly and only when you are comfortable with the payment policies go ahead with the future steps.

Fees and interests

Many consolidation firms in the market promise to give lower interest rates and charge minimal fees but after some time they charge many hidden charges and application fees etc. which you are not aware of. Apart from this in case of unsecured debt consolidation loans, the interest is higher. Also, see to it that the commission rate of the company is low so that you can save your money.

Effects on credit score

Be confident enough that your consolidation firm will not have any effect on your existing credit score. As many consolidation companies force the debtors not to pay their debts for months so that they can bring the creditors to the lowest one-time settlement amount. But this has an adverse effect on the debtors CIBIL score, and he may be charged with several penalties and late payment charges.

Make sure that the consolidation company is not involved in any false or unethical practices which will affect your credit score. Also, never believe in companies which offer you services in exchange for a big amount. No genuine company will do that before you apply for the consolidation process and you give the consolidation company the right to negotiate with the creditors on your behalf.