Pros explained
- Streamline payments: Making multiple payments can feel overwhelming. Business debt consolidation brings everything under one loan and one payment, which can be easier to manage. The monthly payment might be lower and improve your business cash flow.
- Can improve your credit score: When a business lender reports to credit bureaus, making on-time payments can improve your business score. Some business debts (such as business credit cards) are reported to personal credit bureaus. Consolidating business credit cards could boost your credit score by improving your credit utilization.
- Can get out of debt faster: Depending on your situation, you might be able to get out of debt faster with a short-term loan that is more manageable.
Cons explained
- Potential higher long-term cost: Even if you end up with a lower rate, you could see a higher long-term cost. A lower monthly payment might result in a more manageable budget, but if you’re in debt longer, it could mean higher costs.
- Might not solve underlying issues: Consolidating business debt doesn’t solve potential cash flow issues related to revenue and spending. Consider the realities of your business while tackling your debt.
- Risk of collateral: You might need to secure your business debt consolidation loan with equipment or property. Missing payments could result in the loss of the collateral provided.
6 steps to consolidating business debt
Getting a small business debt consolidation loan works similarly to applying for other loans.
1. Determine how much debt you have
Add up your business debt. Include business credit cards and other business loans you have. Understand how much you need to borrow to pay off all your smaller debts.
2. Make sure you meet qualifications
Double-check the requirements for the type of loan you plan to apply for. Some lenders require minimums for time in business and annual revenue. You might also need to meet personal and business credit criteria.
3. Compile required documentation
Gather documents that prove your identity and show your financial and business situation. You might need to provide bank statements, tax returns, articles of organization and other documents as requested by the lender.
4. Review and compare lenders
Get quotes from three to find lenders. Many online business lenders offer prequalification with a soft credit check. Determine which lender offers the best deal and is most likely to help you reach your financial business goals.
5. Complete your application
Fill out the application for your first-choice lender and upload the required documents. Double-check that all the information is accurate. Some lenders can provide approval within minutes. You’re more likely to get a faster decision when all the information is documented.
6. Review your loan agreement and sign
Once you receive approval, review your loan agreement. Verify that the terms and conditions are what you expect. Sign the agreement and confirm where the money will be sent. Once you receive the funds, pay off your other debts with the proceeds of the loan and begin making payments to the new lender.
Tips for comparing debt consolidation loans
As you compare business debt consolidation loans, pay attention to the following factors:
- Cost: Understand how much your loan will cost. Some types of debt consolidation loans might quote you a factor rate instead of an interest rate. Pay attention to how much the loan is expected to cost overall as you make your decision. Check for origination, administration and prepayment fees as well.
- Repayment terms: Many online business lenders offer short-term business loans and lines of credit that must be repaid within two years. If you need a longer loan term, continue comparing business loans from traditional banks and credit unions.
- Funding time: How quickly you can get your money matters if you’re in a crunch. Fast funding for business loans often results in higher costs. If you can wait a little longer, trying to qualify for an SBA loan might make sense.
- Daily, weekly or monthly payments: Payment frequency can impact your business cash flow. For business debt consolidation, consider whether a monthly or weekly payment would better meet your needs.
