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SBA 7(a) & 504 Highlights
- Loan amounts from $100,000 up to $15 million+ (program-dependent).
- Up to 90% financing for eligible acquisitions, real estate, and equipment.
- Use funds for working capital, refinance, expansion, and partner buyout.
- Longer terms (up to 25 years on real estate) to keep payments manageable.
Debt Snowball vs. Debt Avalanche: Which is Better for Tennessee Businesses?
As a business owner in Tennessee, you know all too well the ups and downs of running a company. From unexpected expenses to fluctuating market conditions, it’s not uncommon for businesses to accumulate debt. But as your debt grows, it can become overwhelming and hinder your business’s growth and success. That’s where debt consolidation comes in, specifically the debt snowball and debt avalanche methods. In this blog post, we’ll break down the differences between the two and help you determine which one is best for your Tennessee business.
Tennessee Business Owner Story: The Challenges of Debt
Let’s begin by looking at a real Tennessee business owner’s story. Meet Sarah, the owner of a small boutique in Nashville. Sarah’s business had been thriving for years, but when the pandemic hit, she saw a significant decrease in sales. She had to take out a loan to keep her business afloat, and before she knew it, she had accumulated debt from multiple credit cards and loans. Sarah was struggling to make minimum payments, and her credit score took a hit. She knew she needed to take control of her debt before it destroyed her business.
Debt Snowball: What is it and Who Needs it?
The debt snowball method, popularized by financial expert Dave Ramsey, involves paying off your debts in order from smallest to largest, regardless of interest rates. This method focuses on the psychological aspect of debt, where paying off smaller debts first gives you a sense of accomplishment and motivation to continue tackling larger debts.
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DSCR Rental Loan
- No tax returns required
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- Fast closings ~3–4 weeks
SBA 7(a) Loan
- Lower down payments vs banks
- Long amortization improves cash flow
- Good if your business occupies 51%+
Bridge Loan
- Close quickly — move on opportunities
- Flexible underwriting
- Great for value-add or transitional assets
SBA 504 Loan
- Low fixed rates through CDC portion
- Great for construction, expansion, fixed assets
- Often lower down payment than bank loans
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The debt snowball method is ideal for Tennessee businesses that have multiple smaller debts with varying interest rates. It allows business owners to see progress and stay motivated while paying off their debts.
Credit Score Requirements and Approval Time
Since the debt snowball method focuses on paying off smaller debts first, it can be beneficial for business owners with lower credit scores. This method does not have any specific credit score requirements, making it more accessible for those struggling with debt. As for approval time, it can vary depending on the lender and the amount of debt you have. Typically, it takes a few weeks to receive approval for a debt consolidation loan.
Common Mistakes to Avoid
When using the debt snowball method, it’s essential to avoid common mistakes that can hinder your progress. Some of these mistakes include not budgeting properly and not prioritizing your debts correctly. It’s crucial to create a realistic budget and stick to it to ensure you can make the minimum payments on all your debts. Additionally, it would be best to prioritize your debts by interest rate, not just the amount owed, to save on interest in the long run.
Tennessee Case Study: Sarah’s Boutique
Let’s revisit Sarah’s story and see how the debt snowball method could have helped her. With this method, Sarah would have started by paying off her smallest credit card balance of $2,000 while making minimum payments on her other debts. Once that debt was paid off, she would have moved on to her next smallest debt, a personal loan of $5,000. By focusing on one debt at a time, Sarah would have been able to see progress and stay motivated to pay off all her debts. In the end, she would have saved on interest and paid off all her debts faster.
Debt Avalanche: What is it and Who Needs it?
The debt avalanche method, on the other hand, focuses on paying off debts with the highest interest rates first while making minimum payments on other debts. This method is more financially sound since it allows you to save on interest in the long run.
The debt avalanche method is ideal for business owners in Tennessee with debts that have high-interest rates. It’s also a great option for those looking to save on interest in the long run.
Credit Score Requirements and Approval Time
Since the debt avalanche method focuses on paying off high-interest debts first, it may require a higher credit score to qualify for a consolidation loan. Lenders typically look for a credit score of at least 620 for this method. As for approval time, it can take a few weeks to receive approval for a debt consolidation loan.
Common Mistakes to Avoid
One common mistake to avoid when using the debt avalanche method is not considering the psychological aspect of debt. It can be discouraging to focus on high-interest debts that may take longer to pay off, and some business owners may lose motivation. Additionally, it’s important to make sure you have a plan for paying off your other debts, as making minimum payments can still lead to accumulating more interest over time.
Tennessee Case Study: Sarah’s Boutique
If Sarah had chosen the debt avalanche method, she would have started by paying off her credit card with the highest interest rate of 20% first, while making minimum payments on her other debts. Once that was paid off, she would have moved on to her next highest-interest debt, a personal loan with an interest rate of 12%. In the end, she would have saved on interest and paid off all her debts faster.
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Find the Right Financing for Your Real Estate or Business Project
| Loan Type | Best For | Rates | Terms | Highlights | Apply |
|---|---|---|---|---|---|
| DSCR Loan | Rental properties (LTR & STR) | 5.99%+ | 30-year fixed, IO options | No income docs, fast approvals, great for investors | Check My Rate |
| Construction Loan | Ground-up, fix & build, major renovations | 8%–12% depending on scope | 12–24 months interest-only | Flexible draws, great for builders & developers | Get a Quote |
| SBA Loan | Business acquisition, working capital, CRE | Prime + spread | 10–25 years | Lowest down payments, long terms, best for business growth | See My Options |
FAQs: Answers to Common Questions About Debt Consolidation
- Q: Is debt consolidation the same as bankruptcy?
- A: No, debt consolidation is not the same as bankruptcy. It involves combining multiple debts into one loan, while bankruptcy involves eliminating or restructuring debts through legal proceedings.
- Q: How long does it take to pay off debts with debt consolidation?
- A: The time it takes to pay off your debts with debt consolidation varies depending on your debts, interest rates, and payment plan. It can take anywhere from a few months to several years.
- Q: Will debt consolidation hurt my credit score?
- A: Debt consolidation may initially cause a slight dip in your credit score, but it can ultimately help improve your score by making it easier to make timely payments and reducing your overall debt.
- Q: Can I negotiate with creditors on my own?
- A: Yes, you can negotiate with creditors on your own, but it can be challenging and time-consuming. Working with a debt consolidation company can help streamline the process and potentially get you better deals.
- Q: Are there any fees associated with debt consolidation?
- A: Some debt consolidation companies may charge fees, but there are also non-profit options available that offer their services for free.
Now that you have a better understanding of the debt snowball and debt avalanche methods, it’s essential to evaluate your own business’s situation and determine which one is best for you. Whether you choose to focus on smaller debts first or pay off high-interest debts, debt consolidation can help you take control of your finances and pave the way for a better financial future for your Tennessee business.
If you’re ready to take the next step and explore debt consolidation options for your business, contact GHC Funding today. Our team of financial experts can help you navigate the process and find the best solution for your specific needs. Don’t let debt hold your Tennessee business back any longer, reach out to us today.
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