Consolidate Your Business Debt for More Cash Flow

By Rodney Fingleson,
Chairman, Gumbiner Savett Inc.

Loan consolidation can usually provide significant aid in lessening the debt of your business. On top of reducing the number of your creditors, consolidating several of your loans allows you to reduce interest rates and manage one payment instead of multiple payments throughout the month.

Evaluate Your Financial Position. Prior to exploring the possibility of securing a consolidated loan, it is important to evaluate your financial position with the help of an advisor. I always tell my clients that the first and most critical step is to have clean and accurate financial statements in order to put their best foot forward to a lender. At our firm, we have clients send us their monthly financial statements so we can review them and see if there is anything that stands out. If we see anything out of the ordinary or out of balance, we discuss it with the client.

It is very important to be proactive. If the books and records of a company are not updated, it is very difficult to analyze a full balance sheet. It is crucial to have up-to-date financials in order to make a proper decision as to when to consolidate and when not to consolidate.

Debt consolidation is nothing new. There are numerous reasons, however, why businesses fail to explore this avenue: overwhelming debt, a complicated process, the fear of failing to qualify. I have seen many clients that have charge cards as liabilities on their corporate balance sheets and they use their credit cards as part of their loan strategy for their company. This is extremely expensive, so what we try to do is take all their loans, bundle them up into one package, and have a financial institution fund the amount at a much lower rate (provided the company is making a profit).

The upside to loan consolidation is that you usually can adjust to a much cheaper rate. Consolidation will generally reduce your interest charges, allowing you to have more money available as working capital. A move toward consolidation will help save your bookkeeping time because those hours spent each month reconciling multiple accounts will be lessened to one or two accounts.

Do your homework. You need to be careful of the promises that are made to you by debt consolidation companies. You need to ask the lender specific questions about items such as the loan type, length of the loan, prepayment penalties and interest-rate terms. Often, people like an attractive low introductory rate only to find out that once they have the loan the lower rate is only available for a short time. Consequently, they are left paying the same high rates they had before the consolidation.

If you are interested in debt consolidation, talk to your accountant for more information on the potential benefits that can be derived from the process.

Fingelson is currently the chairman of Gumbiner Savett Inc. He has been in the U.S. accounting industry for almost 30 years where he has assisted private-company clients with both tax and accounting services, management and financial consulting, and purchase and sale negotiations.