How a business loan could help to reduce your costs

Taking out a business loan may help you to reduce your outgoings. If you have multiple debts or lines of credit in the form of loans, credit cards, overdrafts or cash advances, consolidating these debts with a business loan can make your finances easier to manage and potentially cut back the amount you need to repay.

What is debt consolidation?

Debt consolidation involves combining two or more debts into one single debt. The debts you consolidate can take multiple forms, and be held by one or more providers.

When you take out a small business loan to consolidate your debts, the amount you borrow is used to pay off your existing debts and close those accounts. You’ll then pay off the business loan in monthly instalments, plus interest.

How debt consolidation could reduce your costs

Pay smaller monthly instalments

If you’re currently finding it difficult to meet your monthly repayments, taking out a business loan could give you some breathing space by reducing the amount you need to repay each month.

The longer the term of the business loan, the lower your monthly repayments will be. The downside is that, the longer your loan term, the more interest you’ll pay overall. For this reason, it’s advisable to choose your loan duration carefully. It’s essential to ensure you can afford your monthly repayments, but keep in mind that stretching your loan over a longer period than necessary would add cost to repaying the debt.

Get lower interest rates

Interest rates on business loans are often more favourable than those on other lines of credit, like credit cards. Taking out a fixed rate loan will also protect you from fluctuating interest rates, so you know exactly how much you’ll be liable to repay for the duration of your loan term.

At Funding Circle, we offer fixed rate business loans to small UK businesses which start at just 4.9% per year. If your loan application is accepted, the interest rate you’re offered will depend on your financial situation.

Lower your fees

The monthly and annual fees associated with credit cards, overdrafts and other lines of credit can add a considerable amount to the cost of your debt. Depending on the business loan you choose, you may be able to lower any fees linked to your debt. It’s important to keep in mind that there may be multiple fees associated with business loans too, so shopping around for the best deal is essential.

With a Funding Circle business loan, you’ll be charged a one-off fee when taking out your loan — and that’s it.

Gives greater flexibility

Depending on your eligibility, taking out a business loan could offer you greater flexibility and control over your finances. When applying for a loan, you can choose the terms of the loan including the amount you wish to borrow and your preferred repayment duration. However, the terms of any loan you’re offered will depend on your financial circumstances.

Funding Circle business loans offer even greater flexibility, as you’ll have the option to repay your loan early without incurring any additional early settlement fees.

One fixed monthly repayment

For many business owners, the benefits of consolidating multiple debts into one fixed monthly repayment are huge. Keeping track of repayments and managing your cash flow is far simpler when you only have one repayment date and one repayment amount to budget for each month. Plus, you’ll have the peace of mind that comes with knowing it will be the same amount every month, for the duration of your loan.

Other advantages to a business loan

Taking out a loan could help your business in various other ways. For instance, a business loan could be used to:

• Fund expansion into new premises
• Pay for new equipment
• Fund the launch of a new product
• Pay for new marketing materials of an advertising campaign

Depending on the amount you’d need to borrow and your financial situation, it may be possible to take out a business loan to consolidate your debts and fund business growth projects.

It’s essential to consider your finances and goals carefully before making a business loan application, and to avoid borrowing more than you need.

14/06/22: While we want to help as much as we can, the information found here is provided solely for informational purposes and should not be considered financial or legal advice. To the extent permitted by law, Funding Circle does not accept any liability for any loss or damage which may arise directly or indirectly from the use of, or reliance on, the information contained here. If you have any questions, please speak to your professional adviser or seek independent legal advice.