CEM REPORT | SMEs are gradually becoming a real source of revenue or several economies. Although these small business especially in Nigeria are often stranded as a result of harsh business environment, forcing them to fold up or take loans to stay afloat.
The loans keep the business afloat but the owners begin to sink with the challenge of financing loans as a result of unforseen macro-economic factors like inflation.
This factors births increase in production cost and consequently, increase in cost of sales. But the economy affects all implying that potential customers purchasing power is also crippled.
All in a bit to service loans, small business owners are forced to sell at production cost or loose customers to alternative providers or bigger established companies, thereby loosing in on profit that would have been used to finance loans.
In a country like Nigeria where getting loans from banks or micro finance can be a drag, loan sharks (apps) on the other hand provide them at particular not friendly interest rate. With the trend of these apps gaining access to personal information, displaying them in an embarrassing manner to friends and family, to force payment.
It has become a practice for small business owners to apply for more loans to pay off other loans but this doesn’t solve the loan problem, it rather fuels it. It could also become tasking to remember all creditors and meet deadline.
A possible solution to this might be Debt Consolidation. While his might be alien to many small business owners it is quite handy to know.
Debt consolidation is a sensible financial strategy for small business owners who have taken on multiple debts from different sources. Consolidation merges multiple bills into a single debt that is paid off monthly through a debt management plan or consolidation loan.
Debt consolidation is the process of using different forms of financing to pay off other debts and liabilities.
With debit consolidation a small business owners with several debit can apply for a loan to consolidate those debts into a single liability and pay them off. Payments are then made on the new debt until it is paid off in full.
Many borrower are comfortable with debt consolidation as it maximizes the likelihood of collecting from a debtor.
While most people apply through offering financial institutions and credit unions, there are other specialized debt consolidation service companies that provide these services to the general public.
According to Nairametrics Debit Consolidation exist in two types; secured and unsecured loans.
While secured loans are backed by the borrower’s assets, unsecured loans, on the other hand, are not backed by assets and can be more difficult to obtain. Unsecured loans also tend to have higher interest rates and lower qualifying amounts.
However, either type of loan, interest rates are still typically lower than the rates charged on credit cards. And in most cases, the rates are fixed, so they do not vary over the repayment period.
Debt consolidation can be quite a saviour especially for people who have multiple debts with high-interest rates or monthly payments.
However, debt consolidation loans don’t erase the original debt. Instead, they simply transfer a consumer’s loans to a different lender or type of loan.
As long as you don’t take out any additional debt, you can also look forward to becoming debt-free sooner.