How to Consolidate Small Business Debt

May 24, 2021
Small business debt consolidation loan application

Small business debt is something that affects businesses in every industry. When it’s challenging to pay several loans, consolidating your debt may seem like an appropriate option to manage debt over time. 

If you want to consolidate your small business debt, it’s critical that you know you have options to consider and things you should know about each option.

Here’s what you should know about consolidating small business debt.

What is Small Business Debt Consolidation?

Small business debt consolidation is a way to combine existing debt and loan payments into a single payment. A single payment allows the loan holder to pay all of their debts in a single payment that’s organized into a single repayment schedule. 

Business debt consolidation may offer you the following benefits: 

  • Better terms overall
  • Less frequent payments
  • Lower rates

Consolidation vs. Refinancing

Consolidation and refinancing may be similar, but there are differences. 

Refinancing: Refinancing occurs when you take out loans at lower interest rates to pay current, high-interest loans. 

Consolidation: A consolidation is a form of refinancing, but it converts multiple loans into one loan. This new loan is what you’ll use to pay the remaining loans.

Small Business Debt Consolidation: Pros and Cons

While small business debt consolidation is an option for businesses in debt, make sure you’re aware of the pros and cons: 


Small business debt consolidation offers pros that make it attractive for business owners.

Better Cash Flow

Small business debt consolidation improves the cash flow of your small business. You’ll have more cash flow because of paying a single loan throughout the month.

Raised Credit Score Possible

Your credit score may increase if you pay a larger loan over a more extended period of time. 

Easier Payments

A third pro of business debt consolidation is that it’s easier to make payments. You’ll have one payment with a consolidated loan instead of multiple payments with varying interest rates.

Single Creditor

Due to loan consolidation, you’ll pay your loan to a single creditor. This means that as you pay your loan, you’ll pay it to only one creditor instead of multiple creditors.


Although there are pros to business debt consolidation, there are cons that you should know.

Possible Higher Interest Rates

While debt consolidation provides you with a single loan, the loan may have higher interest. The new loan will include principal and interest as well. 

More Interest Accrued Over Time

You may also pay more interest over time. This is because debt consolidation loans are long-term, and that means you’ll pay interest not only at a higher rate but for a longer time.

Cash Flow Issues May Not Resolve

When consolidating your small business debt, it’s likely that cash flow issues won’t improve. The single payment may provide a different way of paying, but it may also create issues if your small business is overspending throughout the duration of the loan.

Doesn’t Address Root Issue

A final con for small business debt consolidation is that it doesn’t address the root issue. There may be other problems, such as excessive credit card usage, or too much spending, that caused debt to accumulate. 

If this is the case, and there are additional factors causing your small business debt to increase, you may want to contact advisors to help you.

Options for Small Business Debt Consolidation

If you want to take advantage of small business debt consolidation, there are federal, local, and online options available to you.

1. Take Advantage of Small Business Administration Loans

The Small Business Administration (SBA) offers loans for business debt consolidation. You may consider these loans first because they offer low-interest rates and flexible repayment options. 

If you want to receive a loan for business debt consolidation from the Small Business Administration, there are two qualifications. First, you’ll need to have solid business revenue, and you’ll need to have a good credit score.

2. Turn to the Bank for Loan Options

You can also apply for business loans at banks. Banks offer business loans for debt consolidation, which can benefit you if you seek competitive rates and terms.

3. Explore Other Lenders

If you can’t obtain business loans from banks or the Small Business Administration, you can consider online lenders:

  • Fundation
  • Funding Circle
  • Lending Club

These options may work well for you if you don’t meet the qualifications set by your bank or the Small Business Administration.

How to Consolidate Small Business Debt Using a Loan

Consolidating a small business debt comprises several steps, which will result in paying a single loan. 

Make Goals

The first thing you’ll want to consider before small business debt consolidation is your goals. You’ll want to think about how the loan will help you save money over time while being viable enough financially to make payments on time.

Add Up Your Debts

Second, you’ll want to add up your debt. This will help you determine if debt consolidation is the best choice for you. As you calculate your debts, it’s wise to organize the total owed along with the interest rate for each creditor. 

You’ll also want to list your credit bills according to the balance owed, to see which debts have the highest totals.

Decide What Debts to Consolidate

Third, you’ll want to decide which debts you’ll consolidate. Not every debt will be beneficial for consolidation, especially with interest rates you’ll deal with. 

Instead, it may be better to create criteria that will help you pay debt using funds you already have. This will help you avoid adding extra debt and interest to your debt consolidation loan.

Check Existing Debts for Pre-Payment Penalties

Before consolidating your existing debts, remember to review your debts for pre-payment penalties

Lenders providing contracts may include penalties within loans, which can take effect when the borrower pays a large portion of their balance in a single payment. It can also take effect where the borrower pays off the entire loan.

Look for a Loan

As you prepare to apply for a loan, it’s wise to look for ones that fit your needs. You’ll need to contact several financial institutions and work with advisors and counselors to find one that works for you. 

Ideally, you’ll have at least three loans to compare to see which works best for you.

Compare Loan Terms

These terms contain the loan repayment period, interest rate, and fees. In addition, there may be important fees in your loan terms, including:

  • Annual fees
  • Application fees
  • Late payment penalties
  • Origination fees
  • Prepayment penalties

When reviewing the loan terms, you’ll also need to examine whether it mentions balloon payments or defaults. These terms can change how you view the loan you want to apply for.

Organize Your Bookkeeping

Before applying for the loan, organize your bookkeeping. Your new loan will be an additional cost over a duration. You’ll have to allocate funds to pay the new loan and ensure that you note the payments.

Apply for Loan

Next, you’ll apply for the loan you’d like. Upon approval, you’ll receive the loan and begin paying as the loan requirements state.

Pay Off Old Loans with New Loan

After receiving your consolidated loan, you’ll pay the old loan amounts with your new loan. This new amount is what you’ll pay over time, so make sure you consolidate loans you can’t immediately pay in full.

Questions about consolidating your small business debt? Contact the finance pros at 1-800Accountant!

When you consider small business debt consolidation, you’ll need help from advisors who can guide you throughout the process and answer any questions you may have. They’ll also be able to walk you through the various options and possible outcomes that are important to consider. That way, you’ll be able to make the most informed decision to start the consolidation process for your small business debt. Work with one of our advisors at 1-800Accountant for help with small business debt consolidation!

This post is to be used for informational purposes only and does not constitute legal, business, or tax advice. Each person should consult his or her own attorney, business advisor, or tax advisor with respect to matters referenced in this post. 1-800Accountant assumes no liability for actions taken in reliance upon the information contained herein.