If you're juggling multiple business debt payments—SBA loans, credit cards, equipment financing, merchant cash advances—debt consolidation might simplify your finances and reduce your monthly burden.
But consolidation isn't right for everyone. Here's what you need to know.
How Business Debt Consolidation Works
Debt consolidation means taking out a new loan to pay off multiple existing debts. Instead of managing 5-10 different payments each month, you make one payment to one lender.
The Process
- Apply for consolidation loan: Based on your credit, revenue, and collateral
- Lender pays off your existing debts: Your old accounts are closed or paid in full
- You make single monthly payment: To the new lender at the new terms
- Improved cash flow (ideally): Lower payment or better terms
Types of Business Debt Consolidation Loans
| Loan Type | Best For | Interest Rate | Requirements |
|---|---|---|---|
| SBA 7(a) Refinancing | $50K-$5M debt, strong business | 7-10% | 680+ credit, 2+ years in business, profitable |
| Term Loan | $25K-$500K, decent credit | 8-25% | 600+ credit, $100K+ revenue |
| Business Line of Credit | Revolving debt, seasonal business | 10-30% | 650+ credit, 1+ year in business |
| Equipment Refinancing | Equipment loans specifically | 6-15% | Equipment equity, fair credit |
Pros and Cons of Debt Consolidation
| Pros | Cons |
|---|---|
| Single monthly payment (simpler management) | May extend total debt repayment timeline |
| Potentially lower interest rate | Requires good credit and qualification |
| Improved monthly cash flow | May require collateral (risk of asset loss) |
| Stop collection calls and late fees | Origination fees and closing costs |
| Predictable payment schedule | Doesn't reduce principal owed |
| Can improve credit score (if payments on time) | Prepayment penalties on existing loans |
Debt Consolidation Requirements
To qualify for business debt consolidation, you'll typically need:
Credit Score
- Excellent (720+): Best rates, most options
- Good (680-719): Moderate rates, most programs available
- Fair (600-679): Higher rates, limited options
- Poor (below 600): Very limited, high-cost options only
Time in Business
- Most lenders require 1-2 years minimum
- SBA loans require 2+ years
- Startups (under 1 year) have very limited options
Revenue Requirements
- Minimum $100,000-250,000 annual revenue (varies by lender)
- Consistent or growing revenue preferred
- Debt service coverage ratio (DSCR) of 1.25+ preferred
Collateral
- Secured loans: Require business assets, equipment, or real estate
- SBA loans: Often require personal guarantee and collateral
- Unsecured loans: Higher rates, stricter credit requirements
See If You Qualify for Consolidation
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Check Your OptionsDebt Consolidation vs. Other Solutions
Consolidation vs. Debt Settlement
| Consolidation | New loan pays off old debts in full. No damage to credit. Requires qualification. |
| Settlement | Negotiate to pay less than you owe (40-60%). Damages credit. For struggling businesses. |
| Best for: | Consolidation if you can afford payments. Settlement if you can't. |
Consolidation vs. Bankruptcy
| Consolidation | Voluntary, requires qualification, maintains credit, pays debts in full. |
| Bankruptcy | Legal process, available even with no assets, significant credit impact, may discharge debts. |
| Best for: | Consolidation if business is viable. Bankruptcy if debts are overwhelming. |
Consolidation vs. Restructuring
| Consolidation | New loan replaces old loans. Fresh start with new lender. |
| Restructuring | Modify existing loan terms with current lender. No new loan. |
| Best for: | Consolidation if you can get better terms. Restructuring if you can't qualify for new loan. |
How to Apply for Business Debt Consolidation
Step 1: Assess Your Current Debt
- List all business debts with balances, interest rates, and monthly payments
- Calculate total monthly debt payment
- Identify which debts have prepayment penalties
- Use our Debt Consolidation Calculator
Step 2: Check Your Eligibility
- Pull business and personal credit reports
- Calculate annual revenue and average monthly revenue
- Review profit/loss statements for past 2 years
- List available collateral
Step 3: Gather Documentation
Most lenders will require:
- 2-3 years of business tax returns
- Personal tax returns (if personal guarantee required)
- Profit & loss statements (recent)
- Balance sheet
- 6-12 months of bank statements
- Current debt statements
- Business licenses and formation documents
Step 4: Shop Multiple Lenders
- Traditional banks (best rates, strictest requirements)
- Online lenders (faster, more flexible, higher rates)
- SBA lenders (government-backed, good rates, slow process)
- Credit unions (member-focused, competitive rates)
Step 5: Compare Offers
Don't just look at interest rate. Consider:
- APR (annual percentage rate): True cost including fees
- Total repayment amount: How much you'll pay over life of loan
- Monthly payment: Can you comfortably afford it?
- Term length: Longer term = lower payment but more total interest
- Fees: Origination, closing, prepayment penalties
- Collateral required: What are you putting at risk?
Step 6: Close and Pay Off Existing Debts
- Sign loan documents
- Lender disburses funds to pay off old debts (or sends to you to pay)
- Confirm all old debts are paid in full
- Request payoff confirmations in writing
- Check credit report in 60 days to ensure accounts show "paid"
When Debt Consolidation Makes Sense
Consolidation is a good option when:
- You have decent credit (650+) and can qualify for better rates
- Your business is generating steady revenue
- You're current on most debts but overwhelmed by multiple payments
- You can afford the consolidated payment comfortably
- The new loan offers better terms than your current debts
- You're committed to not taking on additional debt
When to Consider Alternatives
Consolidation may NOT be the best choice if:
- Your credit is poor (below 600) - you won't qualify for good rates
- You're already behind on payments - settlement or bankruptcy may be better
- Your business is losing money - consolidation won't solve fundamental problems
- You can't afford the consolidated payment - you'll just default on the new loan
- You haven't addressed the root cause of debt accumulation
In these cases, consider: Debt Settlement, Debt Restructuring, or Chapter 11 Bankruptcy
Frequently Asked Questions
Initially, yes—applying for new credit causes a small, temporary dip (5-10 points). However, if consolidation helps you make on-time payments and reduces your credit utilization, your score will likely improve within 6-12 months. The key is making consistent payments on the new loan.
It's difficult. Most consolidation lenders require 600+ credit, with the best options requiring 680+. If you have bad credit, you might still qualify for high-interest consolidation loans, but the rates may not save you money. In that case, debt settlement or restructuring might be better options.
It depends. If you're comfortable researching lenders and negotiating terms, you can do it yourself for free. Debt consolidation companies can help compare options and handle paperwork, but they charge fees (typically 1-5% of loan amount). Only use reputable companies, and never pay upfront fees before receiving your loan.
Timeline varies by lender type: Online lenders: 1-2 weeks from application to funding. Traditional banks: 4-8 weeks. SBA loans: 60-90 days or more. Plan ahead and start the process early if you're trying to avoid defaults on existing loans.
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