Many large corporations and small businesses alike have trouble with repaying their loans. And it’s nothing wrong with looking for financing to grow your business, but it’s dangerous if you can’t repay the loans. Luckily, there is another solution: small business debt consolidation. Today we are going to see what exactly is the small business debt consolidation, when and how should you do it.

Small Business Debt Consolidation Definition

To put it simply, the small business debt consolidation is a process of creating a single account from multiple lines of credit and loans. The purpose is to have just one account at the lowest interest rate. Usually, you can achieve this by getting funds from a new loan with the purpose of paying all the debts. As such, the only debt that remains to be paid is the new one, the consolidation loan. It’s a good area to explore more if you want to learn how to get out of debt fast.

When Should You Get a Small Business Debt Consolidation?

Usually, you know when is the time to get a debt consolidation for your business. If you do it at the right time, you should be able to obtain a low-interest rate, take advantage of some lower terms, and enjoy better repayment schedules. However, not choosing the right time can totally damage your credit, affect your business or interfere with your abilities to borrow in the future.

But when do you know is the right time? If you are already consolidating loans that you took for expediency’s sake, it’s probably not a good idea to consolidate again. However, wait until you are a better applicant for a loan than before. Wait a couple of months of positive revenue before you apply for the consolidation. So, if your personal credit score or business credit profile improves, it’s a good idea to do it. Likewise, if your personal or business finances have improved, or you’re in business for a longer time, try doing it.

How to Do It

If you think it’s the right time for a small business debt consolidation, then you should research some for-profit debt consolidation companies. They can help you with brokering your new loan. The company negotiates the new loan on your behalf, collects the payments from the business, and then pays off the previous creditors you have. Basically, they are intermediaries between you and the creditors. As such, if now you are getting lots of phone calls from them, you shouldn’t receive any after you seal a deal for a business debt consolidation.

What you should know is that the debt consolidation loans can be secured or unsecured. The secured ones ask for collateral, such as your house or another important asset, whereas the unsecured ones don’t need such a warranty. However, a secured loan may be more desirable, having a lower interest rate than an unsecured one. Even so, if you know your business is in trouble, it may not be a good idea to use your home as a warranty that you’ll pay the loan.

What Instruments Are There?

There are various ways in which you can deal with a loan to consolidate your business. If you have a relatively small debt load (for example, credit cards), it’s a good idea to balance transfer them. When you do a balance transfer, you need to open a new credit card that offers a low-interest rate. Ideally, this should be an introductory 0% APR period. Then, you use it to pay off all the other cards. Now that you consolidated the debt with a more forgiving card, you can pay it off with a less interest.

Other people choose to rely on financial instruments that they already use to consolidate their debts. For example, you can borrow against the equity of the home, the life insurance policy or even the 401k plan if you need to consolidate large amounts of debt fast.

However, the most popular form remains the small business debt consolidation loan. Whenever you take out a loan to consolidate the debt, you use the money from the loan to get rid of multiple debts simultaneously.

Is Debt Consolidation the Same as Debt Refinancing?

People who are not very familiar with the terms might confuse debt consolidation with debt refinancing. Indeed, both help people ease their debt, and both presuppose getting a new loan. So what’s the difference then? Refinancing is more a replacing of the loan. When you refinance, you will take out a new loan that has better terms and a lower interest rate. However, with consolidation, the aim is to turn various debts into one. Ideally, you should get a new loan with better terms, but that is not the main point of the consolidation.

What’s more, these two concepts are not mutually exclusive. If you’re in need, you can take up both at the same time. For example, you can refinance a loan if you find better interest rates, then use it to pay off various debts, basically turning them into a loan. This would be consolidating as you’re also refinancing.

Benefits of Small Business Debt Consolidation

Now that you understood more exactly what is small business debt consolidation, it’s time to ask yourself whether you should do it after all. Here you have a brief list of benefits:

  1. It saves you money – having a long-term loan with a lower interest and longer repayment terms will decrease the monthly payments;
  2. It helps you spread out loan payments – even though spreading out the same amount of money over more payments means you’ll pay more interest, you’ll have less to pay every month;
  3. Borrow more working capital – it’s a good chance to think about additional working capital since if you improve as a borrower, you get access to more capital.

Here you can watch a short clip presenting the pros and cons of debt consolidation:


Small business debt consolidation is a great solution if you find yourself in a difficult situation. Basically, it helps convert multiple debts you might have accumulated in time. However, you need to make sure you’re taking this decision at the right time in your evolution.

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