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 |
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SBA loans are backed by the Small Business Administration and administered through SBA-approved lenders. These loans are known to offer high funding amounts of up to $5.5 million, depending on the type of SBA loan you choose. SBA loans are often competitive, offering long term lengths and low interest rates. Some types of SBA loans to consider are:
- 7(a) loan: The most popular type of SBA loan, you can use this loan for general purposes like operating expenses, equipment and refinancing debts.
- Express loan: Used for working capital expenses, this loan offers fast funding up to $500,000. It offers a faster processing timeline than the normal process, which take up to 90 days.
- Microloans: SBA microloans are offered through nonprofits and approved microlenders. They provide loans up to $50,000 to disadvantaged business owners, such as bad credit borrowers.
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Lender requirements for SBA loans often vary. That said, if you have solid credit, such as a personal credit score of 670 or higher, and at least two years in business, you should be eligible for most SBA loans.
If you have fair credit or less time in business, you may want to look for an online lender like Creditfy, which offers SBA loans to businesses with at least six months in business.
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iBusiness Funding offers term loans for up to seven years, which is longer than most online lenders which offer short-term loans. You can borrow up to $500,000 to pay back your current loans and you won’t face upfront costs or have to pay prepayment penalties if you pay back the loan early. You’ll also receive funds in as little as two days, whereas many small business loans can take a week or more to apply for and receive funding. SBA loans are also available with loan terms of 10 to 25 years.
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You can prequalify for an iBusiness Funding loan online with a soft credit pull. You will need a FICO score of at least 640 to be eligible. You’ll also likely need some type of collateral to back the loan, especially for its long-term loans.
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Opening a Fundible business line of credit could be the right option if you want to pay off debts up to $250,000 with access to credit for the future. Once the line of credit is open, you won’t have to renew the line again – it will be open for the life of your business. Fundible is also known to work with business owners who don’t have pristine credit. You may be eligible with a personal credit score of 500 or higher.
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The best way to start a Fundible loan application is to apply online. You can also call Fundible’s responsive customer service at 855-784-0008. Requirements to qualify include:
- 500 personal credit score or higher
- At least six months in business
- At least $8,000 in monthly revenue
- The last three months of your business bank statements
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Accion Opportunity Fund is a non-profit lender that offers loans to small business owners edged out of traditional financing, potentially including applicants with bad credit. It does so while providing low starting interest rates from 8.49 percent simple interest. Its two main loan products are its Progress term loan and its truck financing, both of which offer flexible terms. Accion Opportunity Fund only offers up to $350,000 in funding, which is common for an online lender but lower than the $500,000 or more that most traditional lenders provide.
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You can apply for a loan straight from Accion’s website. Applicants must:
- Have at least one year in business
- Make at least $50,000 in annual sales
- Own a minimum of 20% of the business
- Be at least 18 or older to apply
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Fora Financial offers loan amounts of up to $1.5 million for its short-term loans, a generous amount for any online lender. Its loans have up to 24 -month terms, and you won’t have to provide collateral, though you still have to qualify based on your credit and revenue. This loan works well if you have a larger amount of debt but can repay it on a tight timeline. This loan is also revolving, allowing you to borrow more once you repay the initial amount. Fora Financial approves loans within four hours and you can receive funds within 24 hours.
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Fora Financial takes a relaxed approach to business loan requirements, allowing you to get a loan with just:
- At least 6 months in business
- 570 FICO credit score or higher
- $20,000 in gross monthly sales
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If you’re pressed for time when looking to consolidate your business loans, perhaps because payments are coming due, you can apply for a loan from Backd in minutes and get funding in as little as 24 hours. This online lender offers loans between $10,000 and $1.5 million, whereas most fintechs stop funding at $500,000. You can only get short loan terms up to 24 months, so you’ll need to be prepared to pay back your consolidated loan quickly with automatic weekly or monthly payments. Also, understand that Backd charges factor rates, meaning the interest applies to the entire loan upfront.
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Apply for a Backd loan online or by calling 737-256-7458. Backd has lenient but common requirements to be eligible for its business loans, including:
- 650 minimum credit score
- 1 year in business
- $100,000 in annual revenue for its business term loan
- A business bank account
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.
Frequently asked questions
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Business debt consolidation may be a good idea if you can get more favorable repayment terms or interest rates than you have with your current business loans. It may also be a good idea if you struggle to manage multiple business loan repayments. Business debt consolidation will help you by combining multiple loan payments into a single business loan payment.
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Business debt consolidation could lower your credit score slightly since you’re applying for a new business loan and closing down old accounts. However, your business credit score should recover quickly if you make on-time payments with the new loan.
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Yes, you can use a small business loan to consolidate previous business debts. The lender may ask you for the purpose of the loan funds during the application, so you’ll need to tell the lender that the purpose is to pay off debts.
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