Key takeaways
- The best business debt consolidation loans will offer you longer repayment terms or lower interest rates than your previous loan
- You can use a variety of business loans to pay off current business debt, including an SBA loan, line of credit or short-term loan
- Compare multiple debt consolidation lenders to find the best fit for your business
Business debt consolidation loans come in handy when you want to take your existing business debt and roll it into a new loan — allowing you to only have one payment. You can use many types of business loans to pay off business debt, including some SBA loans, which are backed by the U.S. government and offer competitive terms.
But you’ll want to compare different lenders to find the best loan offer possible. Ideally, the new loan will offer lower interest rates or longer repayment terms, both of which lower the monthly payment. .
Compare the top lenders and types of loans to make the best choice for your business.
Compare the best business debt consolidation loans
| Lender | Loan type | Loan amounts | Bankrate score |
|---|---|---|---|
| SBA | SBA | Up to $5.5 million | 4.8 |
| iBusiness Funding (formerly Funding Circle) | Long-term loan | $25,000 to $500,000 | 4.5 |
| Fundible | Business line of credit | $1,000 to $500,000 | 4.7 |
| Accion Opportunity Fund | Term loan | $5,000 to $250,000 | 4.1 |
| Fora Financial | Short-term loan | $5,000 to $1.5 million | 4.4 |
| Backd | Working capital loan | $10,000 to $2 million | 4.5 |
| Bank of America | Term loan | from $10,000 | 4.1 |
| Wells Fargo | Business line of credit | $5,000 to $3 million | 4.2 |
What is a business debt consolidation loan?
A business debt consolidation loan is any business loan that you use to pay off multiple existing business debts. Rolling all your existing debts into one loan allows you to make a single monthly payment.
You may consider getting a debt consolidation loan if the new loan offers a longer repayment term or lower interest rates than your current loans. You may also want a consolidated loan to make it easier to track and repay your business debts using a single payment.
But beware that the new business loan could cost you more if the new interest rate is higher or the new loan comes with additional fees.
You could also pay more if you choose a longer repayment term since you’ll be paying interest for a longer period. You might choose this strategy only if you need the lower payments.
Before you consolidate your business debt, check to make sure none of your current loans charge a prepayment penalty, which penalizes you for paying off the loan early. . Use a business loan calculator to estimate your loan costs and determine whether the new loan offers the true benefits of longer or lower payments that you need.
What is the difference between business debt consolidation and refinancing?
A debt consolidation business loan is similar to refinancing in that you take out a new loan to pay off your existing loans . The main difference is that refinancing involves taking out a new loan to pay off only one loan, while business debt consolidation involves taking out one loan to pay off several business loans.
Bankrate insight
You may consider refinancing a business loan when you can get more favorable interest rates or longer terms with a new business loan. It’s easier to find more favorable terms for one loan than it is if you were consolidating multiple business loans. Keep in mind that longer terms can help you lower monthly payments, but you may pay more in interest in the long run.
Types of business debt consolidation loans to consider
Consider whether these types of loans will help you achieve better interest rates and terms than your existing loans. Loans you might consider:
| Type of business loan | Description |
| Term loan | Pays one lump sum that you repay with interest over a specific term, such as three to 10 years. |
| Business line of credit | You receive a credit limit that you can borrow from at any time. You only pay interest on the amount borrowed. Plus, as you pay off the loan, you can reuse the credit again in the future. |
| SBA loan | This loan is guaranteed by the U.S. Small Business Administration and is designed for small businesses that can’t qualify for conventional loans. SBA loans are known for their low maximum interest rates and long repayment terms, which keep borrowing costs low. |
| Secured business loan | Because a secured loan is backed by valuable assets as collateral, lenders typically offer low interest rates and favorable terms. You could use a secured loan to consolidate unsecured debt. |
Alternatives if business debt consolidation is not an option
If getting a business loan for debt consolidation isn’t the best option for you, you do have some alternatives:
- Balance transfer business credit cards. If you’re looking to achieve lower interest rates, look into business credit cards with low introductory APRs for balance transfers. You may save money in interest if you can pay off the loan within the introductory APR period.
- Business grants. Grants are well worth the work of applying since you can pay off existing debts without having the repay the grant. It’s essentially free money. However, you will be competing with other businesses applying for the grant. You’ll also have to wait several weeks or months to see if you won the grant money.
- Crowdfunding. Crowdfunding gives you the option to raise funding from multiple investors. You can either raise funds through donations or offer a reward such as equity in your business or the product you’re developing. Some crowdfunding platforms also work like a business loan. You’ll need to repay investors over a specified time period.
- Angel investors or equity financing. You could seek out one or more investors who are willing to make significant investments into your business. These investors can offer guidance in decision-making, but the tradeoff is that they often want control over how the business operates.
How to consolidate business debt
To get started with consolidating your business debt, follow these steps:
- Apply or prequalify for business loans from multiple lenders.
- Compare the loan offers, looking for the loan with the features and terms that suit your needs.
- Choose the business loan with the best offer from your preferred lender.
- Finalize the new business loan by filling out the application, getting approved and making your payment.
- Wait to receive the loan funds, which can take anywhere from 24 hours to a few weeks, depending on the lender.
- Use the loan funds to pay off your existing business loans.
- Continue making the consolidated business loan payment until the loan is paid off.
How to compare business debt consolidation loans
The main reasons to consider a business loan to consolidate debt is to either save money or combine debts into one repayment. When comparing loans, consider these features about the loan.
- Interest rates. Ideally, you would find a business loan with a lower interest rate than your existing loans.
- Repayment terms. To pay off the loan as quickly as possible, consider the shortest repayment term that your business can handle. However, if you need lower monthly payments, you could choose a long repayment term. Just be aware that you’ll pay more in interest in the long run.
- Fees. Consider additional fees that you’ll pay with the new loan, such as an origination fee. Additional fees will offset any savings you might get from consolidating loans. You may also pay one or more prepayment penalties with your existing loans since you’re paying off those loans early.
- Monthly repayment. Use a business loan calculator to estimate the monthly repayment. Add the monthly repayment to your budget to see if you can easily manage the new business loan.
Pros and cons of business debt consolidation loans
Pros
- Consolidate into one loan repayment. You could make one loan repayment instead of multiple payments with your existing loans.
- Could receive a lower interest rate. If you shop around, you could find a lower interest rate than you’re currently paying.
- Lower monthly payments. A lower interest rate or longer repayment term could effectively lower the amount of each payment. Lower payments are ideal if you’re struggling to make the current repayments.
Cons
- You could pay more in interest long-term. If you’re not careful, you could end up paying more in interest. This is especially true if you opt for a long repayment term since you’re paying interest for a longer amount of time.
- May pay additional fees. Getting a new loan could require that you pay additional loan fees, like an origination fee. You may also pay prepayment penalties with your existing loans. You’ll need to pay these fees upfront when signing for the new loan.
- Does not get rid of the debt. Consolidating business debt does not eliminate the debt repayments. Instead, it simply shifts the repayments to a new debt.
Bottom line
You can use many types of business loans to pay off your current business loans and consolidate your debts. When applying for a loan, you simply need to state that the purpose of funding is to pay off business debts.
But, the best business debt consolidation loans will offer you lower interest rates or longer repayment terms than your current loans. These favorable terms will either lower your monthly payments or help you save money in interest. To be sure that you’re getting the best offer, prequalify with several business lenders to see what loan terms they offer you.
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