Business Debt Consolidation: A Guide To Regaining Control
7 MIN READ
Published October 23, 2023 | Updated November 09, 2023
If you’ve got multiple loans, you can simplify your payments by replacing them with a single loan. Business debt consolidation can lower monthly payments and resolve cash flow issues. If your current loans are at higher interest rates, you may be able to save by consolidating them into a low-interest rate loan.
However, finding the right lender may be difficult for newer businesses without a strong credit history. Businesses with an established history may be able to get the best possible rates and terms from lenders.
What Is Business Debt Consolidation?
Business debt consolidation combines several existing loans into one new loan. If you’ve got multiple personal loans for business, merchant cash advances, or other debt, you can replace them with a debt consolidation loan, so you’ll only have to make a single payment each month.
A debt consolidation loan may give you a lower monthly payment, a shorter repayment period, or a better interest rate. Consolidation loans are different from refinancing. Refinancing means getting a new loan with better terms to pay off your existing loan, not combining multiple loans.
Why Should You Consider Business Debt Consolidation?
If you’ve got business debt from multiple sources, consolidating them may have a few benefits. If you’ve got a good credit history, you may be able to qualify for lower interest rates. When you replace your high-interest rate loans with a consolidation loan, you may save a considerable amount of money over the life of the loan.
Business debt consolidation also simplifies repayment by combining all your debts into a single loan. Streamlined payments make it easier to avoid missed payments, which can lower your credit score. Lower monthly payments can improve your business’s cash flow and cover other expenses.
How To Get a Business Debt Consolidation Loan
The method of getting a business debt consolidation loan varies for each lender, but these are the steps you’ll usually need to take:
- Assess your debts and make a list with each loan balance, annual percentage rate (APR), terms, and prepayment penalty.
- Check your credit report to see what type of loans you may qualify for.
- Shop around and compare loan offers from various lenders.
- Gather necessary documents, such as business plans, profit and loss statements, tax returns, bank statements, and cash flow forecasts.
- Submit your loan application, wait for underwriting, and sign the final paperwork once approved.
Consolidation Options To Consider
“Consolidating a business loan for a lower APR and better terms is always a good idea,” says Teresa Dodson, debt expert and founder of Greenbacks Consulting. “In some cases, you'll have to personally guarantee this business loan as well, so make sure your personal credit is in good shape too,” Dodson adds.
You can get a business consolidation loan from traditional banks and online lenders. Online lenders usually have less stringent eligibility requirements and faster processing, but banks may offer better terms and lower rates. If your debt mostly consists of credit card balances, a balance transfer credit card may be right for you.
Business Debt Consolidation Loans
If you’ve got excellent credit, credit unions and bank loans offer competitive terms and rates for consolidating debts. Chase Bank offers small business loans starting at $5,000 with terms ranging from 12 to 84 months.
Many online lenders offer loans with flexible qualification requirements if your business is new or if you don’t have good credit. The approval process and funding are usually quick, but you may have to pay higher interest rates. Fundbox is an online lender that offers loan amounts of $1,000 to $150,000 with APR starting at 4.66%.
Another great option is an SBA loan, which offers longer repayment terms and competitive interest rates. It may be easier for small business owners to qualify for these loans because the U.S. Small Business Administration partially guarantees them, but they can be slow to fund. Current interest rates vary from 11.5% to 15%, depending on the loan size.
If you’ve got multiple business credit cards and excellent credit, you may qualify for a balance transfer card. Instead of consolidating your debts through a loan, you can transfer your existing balances to the new credit card.
The U.S. Bank Business Platinum Card offers 0% introductory APR for 18 billing cycles on balance transfers. Ongoing APR is 17.24% to 26.24%. The balance transfer fee is either $5 minimum or 3% of the amount of each transfer, whichever is greater.
This may be a good option only if you’re sure you’ll be able to pay off the entire balance before the 0% introductory period is over. Otherwise, interest charges will kick in, and you’ll return to debt.
How To Manage Business Debt Through Consolidation
Consolidating your debt into one loan can be an excellent way to make repayment easier and save money. However, it’s also important to shop around, compare loan options, create a clear repayment plan, and stick to it if you want to succeed.
Create a Debt Repayment Plan
If you want to pay off your debt successfully, having a clear plan is important. Start by making a list of all your debts, and include important details like total loan balance, APR, monthly installment, and prepayment fees.
Once you know how much you owe, research lenders that offer business debt consolidation loans and compare their offers. Ideally, you should get a loan with a lower interest rate than your existing debts. Prequalify for a few different loans to see which lender offers better rates and repayment schedules.
Prequalifying will also give you an idea of how much loan you can borrow and the monthly installment you’ll need to pay. Create a budget to ensure you can pay the installment each month. Pick a time frame to pay off the loan and select a term that aligns with this goal.
Negotiate With Creditors
You don’t have to accept the first loan that comes your way. Shopping around and finding the lowest possible interest rate is crucial to save money. You can negotiate with financial institutions for extended payment periods and lower interest rates.
Lenders may be more willing to negotiate with you if you've got excellent credit. You may also be able to negotiate if you’ve received a better offer from a competitor.
Choosing the Right Business Debt Consolidation Service
If you’re considering a business debt consolidation loan, evaluate multiple lenders and compare their offers. When choosing the best debt consolidation loan, start by evaluating the qualification requirements of different lenders to see which one may be the best fit for you.
You should also consider the interest rates and fees offered by different lenders, like origination fees and prepayment penalties. Business loan APRs may vary based on your qualifications and credit profile, so ensuring you’re getting the lowest rates is important. Loan repayment terms can directly impact how much you’ll pay each month, so compare them carefully.
The Bottom Line on Business Debt Consolidation
Business debt consolidation loans can make your payments more manageable, help you pay off debt faster, and improve your cash flow. However, all financing options come with risks, such as not being able to afford the loan payments and defaulting.
Shop around carefully for a better interest rate and weigh the pros and cons to check if it’s worth consolidating your business debt. Depending on your circumstances, you can choose from traditional banks, online lenders, balance transfers, and SBA loans.