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Best Loans for Business Debt Consolidation
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Business debt consolidation can bring all of your business loan debt under one roof. This simplifies the repayment process and potentially lowers your interest rate, providing much-needed debt relief.
But it also means you might be paying off that debt for longer, which could eat into that savings or even drive up costs over time. A business debt consolidation loan could be worth it for the convenience of one monthly payment, especially if you qualify for better terms. This guide can help you decide if this is the best option for you to manage your outstanding obligations.
Business debt consolidation loan options
Business consolidation loans are available from traditional banks as well as alternative, online business lenders. Online lenders generally have more lenient eligibility requirements and faster time to funding than banks, but banks may offer lower rates and better terms.
Be sure to watch out for high rates that could offset the amount of money you’d save through business debt consolidation. You can also use a business loan calculator to determine how much you might be able to borrow.
Here are a few lenders offering business consolidation loans that may provide financial relief for your business:
|Minimum credit score||APR||Loan amount||Loan terms|
|Chase Bank||Not specified||Not disclosed||Starting at $5,000||12 to 84 months|
|Credibility Capital||Not specified||Starting at 8.49%||$50,000 to $500,000||12 to 60 months|
|Funding Circle||660||Not disclosed||$25,000 to $500,000||6 to 84 months|
|OnDeck Capital||600||Starting at 29.90%||$5,000 to $250,000||3 to 24 months|
|SBA 7(a) loans||No minimum||5.75% - 11.50%||Up to $5,000,000||Up to 120 months|
|SmartBiz||660||Interest Rates from 7.50% - 10.29%||$30,000 to $5,000,000||120 to 300 months|
- Amounts: Starting at $5,000
- APR: Not disclosed
- Loan terms: 12 to 84 months
If your business qualifies, a business consolidation loan from a bank could be your best option to secure a lower rate and better terms.
Chase Bank offers small business term loans starting at $5,000 that can be used to consolidate business debt. Chase’s terms range from 12 – 84 months, and rates are fixed or adjustable, though not disclosed online. Large national banks tend to charge annual interest rates between 2.54% and 4.19% with fixed monthly payments.
Keep in mind that banks typically require extensive documentation from applicants and may review your bank statements, credit report, business plan and financial statements, among other information.
- Amounts: $50,000 to $500,000
- APR: Starting at 8.49%
- Loan terms: 12 to 60 months
If you run a small business with good credit, Credibility Capital may be a viable debt consolidation route for you. Not only does this lender not charge any application or prepayment fees, but they also offer a wide range of loan amounts.
To be considered for a business debt consolidation loan through Credibility Capital, you’ll need to be in business for at least two years, have a good credit score and be profitable. Business owners looking to borrow with this lender also cannot have filed for bankruptcy (business or personal) in the last five years.
Credibility Capital does not offer loans in Nevada, North Dakota, South Dakota or Vermont.
- Amounts: $25,000 to $500,000
- APR: Not disclosed
- Loan terms: 6 to 84 months
Funding Circle, an online lender, offers term loans from $25,000 to $500,000 for business debt consolidation. Terms range from 6 to 84 months with a monthly repayment schedule.
Funding Circle doesn’t publicly disclose rates, but it does provide a loan calculator to help you estimate the cost of financing. Based on the calculator, a $150,000 loan with a 24-month term could have an APR of about 6%, including Funding Circle’s 3.49%–6.99% loan origination fee.
To be eligible, businesses need at least two years in business and a personal FICO Score of at least 660.
- Amounts: $5,000 to $250,000
- APR: Starting at 29.90%
- Loan terms: 3 to 24 months
If you’re looking for a business debt consolidation loan with short terms, you may want to explore loans with OnDeck Capital. This lender offers short-term business loans that run from 3 to 24 months. This time frame is much shorter than many other business loans on the market.
To top it off, OnDeck also has one of the lowest borrowing amounts — $5,000 — though its credit limit only goes as high as $250,000. As such, this may not be a good fit for businesses looking to consolidate extremely large debts.
To be considered eligible for a business debt consolidation loan, OnDeck requires the following:
- You must be in business for at least one year
- A personal FICO Score of at least 600
- Have an annual gross revenue of at least $100,000
- Have a business checking account
SBA 7(a) loans
- Amounts: Up to $5,000,000
- APR: 5.75% – 11.50%
- Loan terms: Up to 120 months
Small Business Administration (SBA) loans, which are backed by the U.S. SBA, are among the most popular types of business loans. Some banks, credit unions, nonprofit and online lenders offer these types of loans because they present less risk, giving business owners who wouldn’t otherwise be eligible for a loan the opportunity to qualify.
Among the various types of SBA loans are 7(a) loans, which can be used for business debt consolidation. The 7(a) program is the SBA’s primary funding option for general business expenses.
The SBA caps interest rates that lenders can charge with repayment terms up to 120 months, depending on the use of loan funds. The SBA can guarantee up to 85% of a business loan.
- Amounts: $30,000 to $5,000,000
- APR: Interest Rates from 7.50% – 10.29%
- Loan terms: 120 to 300 months
SmartBiz is an online lender that offers bank term loans and SBA loans.
The APR, loan terms and funding amount you receive from SmartBiz depends on what type of loan you apply for. For instance, SBA loans run from $30,000 to $5,000,000, while the lender’s bank term loans range from $30,000 to $500,000.
If you’re seeking a lower rate when consolidating business debt, an SBA loan through SmartBiz may be a desirable option. However, SmartBiz borrowers need a personal credit score of at least 660.
How business debt consolidation works
To consolidate debt, business owners need to take out a new, larger loan to pay off all of their existing loans and other forms of credit. This way, rather than make separate payments on multiple business loans, you roll all of your debts into one loan and make a single monthly payment.
The new loan may have a lower interest rate or a longer repayment term than your previous loans, giving you more time to pay off debt with smaller payments. Keep in mind, however, that the longer the term on your loan, the more you’ll pay in interest over time.
Business debt consolidation can provide relief if you’re able to find a loan with a lower interest rate than your current debts. But you may still owe fees to the new lender, such as an origination fee to process the new loan. Before signing on the dotted line, make sure that a debt consolidation loan will save you money and won’t end up being more expensive than your current financing.
Business debt consolidation: Pros and cons
Although business debt consolidation can streamline your repayment process, borrowing funds may come with downsides. Here are a few benefits and drawbacks to consider before moving forward with a debt consolidation loan.
Opportunity to lower your rate and secure longer terms
Single lender would handle your debt, rather than multiple creditors
Money saved through consolidation could go back into the business, potentially improving cash flow
Possible credit score boost
Longer terms could mean paying more in interest over time
Lower interest rate or better terms are not guaranteed
Cash flow issues may not be resolved
May have to pay new lender fees such as an origination fee
Business debt consolidation pros
Business debt consolidation loans can make your debts much more manageable, especially if you are able to secure a lower interest rate or decrease the size of your monthly payments. You may also be able to receive a longer loan term, which can give you more time to pay off your debts. Not only can this approach help you to save money, it can also help improve your credit score as it may help you to pay off debts faster.
Business debt consolidation cons
On the other hand, a business debt consolidation loan may not work for everyone. There’s no guarantee that you’ll receive more beneficial terms. In fact, if you have a large amount of debt, your credit score may already be suffering, which can make getting approved more challenging. On top of that, you may also have to pay fees when taking on a new lender. If you’re struggling with your cash flow, a debt consolidation loan may not be the right decision for your business and you may have to look at alternative approaches to your debt.
How to get a business debt consolidation loan
Getting a business debt consolidation can be a long and complex process. While the method of getting a loan varies from lender to lender, these are typically the steps you’ll need to take.
- Assess your current business debt and make a list that includes each loan balance as well as the terms and APR on each loan or form of credit. Be sure to research relevant details, such as prepayment penalties, so you aren’t penalized if you decide to take out a debt consolidation loan.
- Check your credit score to see what kind of loans and lenders you may qualify with. Many lenders weigh your credit score heavily when choosing whether to offer you a loan, so you’ll want to make sure your credit score is in a good place before beginning the process of applying. Some types of loans, like SBA loans, may have more flexible requirements for borrowers, so be sure to check lenders’ criteria before filling out an application.
- Shop around for business debt consolidation loan options and compare offers from several lenders to see what kind of rates and terms you may be eligible for. You don’t have to accept the first offer you’re given. This may help you in saving money in the long run, particularly if you can secure a lower interest rate.
- Gather the required documentation to submit your application to lenders. While each lender has varying requirements, most typically ask that you provide documents such as a profit and loss statement, a cash flow forecast and business plan. During this process, you also may have to do an interview with the lender’s underwriting team and submit to a background check on your tax background and original loans. If you’re officially approved, you’ll need to sign the final paperwork.
- After you’ve accepted a business debt consolidation loan, you’ll need to use the funds to pay off your existing debts. Typically, your new lender will handle this, but it’s important to confirm that the payments were made, as missed payments to your old lenders could reflect on your credit profile.
Alternatives to business debt consolidation
Business debt consolidation vs. refinance
Refinancing business loans is another debt relief strategy, but it differs from debt consolidation. Business debt consolidation involves taking out one new loan to pay off multiple loans, while refinancing refers to taking out a new loan to pay off one single loan.
If you have several debts to repay, you’d likely turn to debt consolidation. If you want to replace one existing loan with a new loan that may have better rates and terms, you would typically refinance your debt rather than consolidate.
Both options are designed to help you manage your debt and possibly secure a lower interest rate and longer repayment terms. The amount of debt you currently have would be the deciding factor in whether you pursue consolidation or refinance. You may be able to refinance your loan with your current lender.
Business debt consolidation vs. restructuring debt
Another way to manage business debt is to work out an arrangement(s) with your current creditors. You may want to consider writing a hardship letter when submitting your request. This document would reflect why you need to restructure your business debt, including financial statements to reinforce your claims. Being open about your circumstances could help your case.
Good vs. bad business debt
An important aspect to guiding a business to success is knowing when it’s time to acquire debt. Business debt can be separated into two categories: good and bad debt.
Good debt can be viewed as an investment in your business. There’s an old saying that goes, “you have to spend money to make money,” and that’s how some business debts are viewed. By taking out the money now, you can increase your profits, accumulate capital, pay back the loan and make even more money.
Bad debt, on the other hand, could be considered funds spent on assets that depreciate their value and don’t provide growth opportunities for your business. It may also look like taking on debt you can’t afford or debts with unfavorable interest rates, fees and terms.
Examples of good business debt
Government-backed small business loans: Entrepreneurs can access business loans from the federal government with lower interest rates than they may find with some private lenders, especially if they haven’t had a chance to build up their business credit yet. Should you find yourself having to declare your business bankrupt, this government debt may even be decreased or forgiven.
Loans that go toward growing your business: Business debts should go toward making your company more profitable. For instance, if you’re having a difficult time keeping up with purchases from clients, you could use that money to invest in more employees or equipment to increase your workload.
Examples of bad business debt
Debt you can’t afford: Debt becomes bad when you’re unable to pay it off. The federal government even refers to it as “worthless.” Bad debt can be partially or fully deducted when filing your business income tax return. Other types of bad debts include:
- Debts that are guaranteed
Loans to employees, customers, suppliers or distributors
Sales that offer credit to customers
Business debt consolidation: FAQ
Can a business get a debt consolidation loan?
Yes, you can consolidate business debt with a business debt consolidation loan. This loan would allow you to combine multiple outstanding balances into one loan balance. You may be able to get a lower rate and a longer amount of time to repay your debt.
Do debt consolidation loans hurt your credit score?
Debt consolidation loans can put a temporary dent in your credit for several reasons. For one, in order to receive a debt consolidation loan from a reputable lender, you’ll need to submit to a hard credit inquiry, which can temporarily lower your credit score a bit. Some lenders may also view a debt consolidation loan on your credit profile in a negative light, seeing it as you struggling to manage your debts. However, debt consolidation loans can also help your credit score as they can help you pay off your debt faster and make payments more manageable.
What is the best debt consolidation company to use?
Business owners can apply for debt consolidation loans from banks or online lenders, and which one you choose may depend on your business’s eligibility. Bank loans typically have strict eligibility requirements, but often come with favorable rates and terms. Online loans are generally easier to qualify for than bank loans, but could come with higher rates and fees. Consider your business’s circumstances when making your decision.
Can you use a Small Business Administration loan for debt consolidation?
Yes — SBA loans can be used to consolidate your business debts. SBA loans are backed by the federal government and borrowers can apply for up to $5 million. However, to receive this loan, you may have to offer up collateral if you take out more than $25,000.
How much debt is OK for a small business to have?
While there’s no specific amount as to how much debt you should or shouldn’t have, it’s generally a good idea to keep your business’s debt-to-equity (D/E) ratio in mind when calculating how much debt to take on. With consumer debt, this is known as debt-to-income ratio.
Your D/E ratio is measured by dividing your business’s debt by your shareholders’ equity. Your D/E ratio gives lenders (and you) insight as to whether you can afford more debt. As a result, you may want to keep that ratio low.
By offering a detailed and objective account of each lender’s rates and terms, LendingTree’s goal is to provide you with all the information you need to make a financially sound decision specific to your situation. We chose business debt consolidation loans from lenders that are reputable and offer transparent rates, repayment terms and funding amounts.
Business debt consolidation lenders were chosen based on the following criteria:
- Minimum credit score requirements below 680
- Transparent rates and repayment terms
- Flexible loan amounts
- No more than two years in business required