There are times when I’ve recommended personal debt consolidation to my clients (prior to applying for an unsecured business line of credit) if their revolving debt utilization is above 30% (and they cringe). However, there are good ways to consolidate your personal debt and consolidating before you apply for an unsecured business line of credit can help increase your chances of approval. This is especially true if you have a significant amount of revolving debt (i.e. personal and store credit cards). Moving your revolving debt to secured financing through consolidation, will lower your revolving debt utilization and enable you to have a better chance of qualifying for unsecured business line of credit financing for your company.
If you need to consolidate your personal debt before applying for an unsecured business line of credit (or any other type of small business financing), here’s what you should know and do before taking that step:
- They will do soft pulls to pre-qualify you, a hard pull prior to closing – It’s important to know that lenders will pull your credit prior to approving (or denying) you for a debt consolidation loan. Although you are applying to consolidate your personal debts, it’s still required that you have a pretty decent credit history. If your credit is less than perfect, you may to work on cleaning it up before you apply for a debt consolidation loan.
- May require income documentation such as pay stubs – Be prepared to provide lenders with your proof of income. They will most likely ask for your paycheck stubs (and in some cases your personal tax returns) to determine if you have the ability to service the debt consolidation loan.
- Research, Research, Research – The bottom line is, you should research various lending sources before you apply for a debt consolidation loan, so you can know what requirements you have to meet to get approved and what features their loan product offers.
If you have high revolving debt (i.e. your credit card utilization is over 30%), you may benefit from consolidating your debt using the sources outlined in the chart below. These are non-bank lending sources. The chart provides you with critical information about each lender including which bureau they pull your credit reports from, their closing fees, amortization schedule (i.e. payback period), and approval amounts, etc.