A business line of credit can assist small and medium sized enterprises (SME) with improving their cash flow management in a number of ways.
One of these is restructuring their existing loans and effective debt consolidation.
In this article, we will outline how you can use a line of credit for loan restructuring and to help free up access to the working capital you need to succeed.
What is Loan Restructuring?
A loan restructure is a process by which you can modify the original terms of a loan so that the repayments are more manageable, favourable and cost effective.
One of the most common and effective ways to do this is through debt consolidation. In other words, rolling multiple business loans and other forms of debt into one single line loan or line of credit.
Restructuring your loans into a single revolving line of credit allows you to:
Redraw the funds as you pay it off
- Avoid being locked into multiple and fixed repayment schedules
- Simplify your cash flow
- Lower your cost of interest
- Unlock working capital for further investment and use
Why should you move from term loans to a Line of Credit?
For many SMEs, having multiple loans and debt causes cash flow pressure and financial stress.
With a team of lending specialists, like we have here at ScotPac, you can effectively consolidate that debt and turn it into a flexible line of credit to fuel your business’s growth and success.
The overarching benefit of a line of credit is that it works as a revolving facility providing working capital, rather than traditional debt which is an ever-slowly shrinking loan balance.
The benefits of engaging in a loan restructure to a line of credit include:
- Easier management with one facility rather than multiple loans
- A line of credit allows access to funds up to an approved limit
- You only pay interest on the funds you draw and use
- It is easier to maintain positive cash flow and lower interest rates
How is a Business Line of Credit beneficial for cash flow?
The purpose of debt consolidation through a business line of credit is to help free up more working capital for your business to use for further growth.
- Lower interest rate saves money compared to multiple high-cost facilities
- Longer and more tailored payment terms for lower monthly repayments
- Interest is not charged on the full amount but only what you draw
- Easier to manage and more in-control of your cash flow
Should you consolidate your debt into a single business loan?
A standard business loan can be a good financial solution for some SMEs looking to make a large one-off investment to further grow their business.
However, traditional loans work a little differently from a business line of credit:
Loans provide a lump sum repaid over a fixed term
- Loans charge interest on the entire amount provided
- You cannot redraw funds once paid
- Eligibility criteria can be stricter for business loans
With a business line of credit, you enjoy more control over your repayments and access to working capital to help you meet payroll, order new stock, or pay down ATO debt.
If your business is struggling to manage your cash flow thanks to its existing multiple loans and facilities, each with different interest rates and payment schedules, make sure to reach out to the ScotPac team today.
How does restructuring into a line of credit work?
When you work with our team to restructure and consolidate your debt, our lending specialists will walk you through every step.
First, we will list all your current debts, including term loans, overdraft facilities, ATO payment plans and the like
- Then we will work out the total balance, interest rates and repayment schedules
- Our specialists will assess your cash flow and financial position and needs
- Then we can set up a custom business line of credit to pay out the various debt and consolidate it into one manageable structure
Do you want to explore how Debt Consolidation can work for you?
ScotPac currently supports over 9,300 businesses with our finance solutions, including lines of credit.