If you’re carrying multiple business loans, you may want to think about business debt consolidation. This strategy streamlines your obligations into one monthly payment, ideally at a lower interest rate than what you’re paying. If you have high-interest liabilities for credit cards or lines of credit, for example, a debt consolidation loan could be the move for you.

But is it? Let’s examine what to look for in a debt consolidation loan for business.

How Does Small Business Debt Consolidation Work?

The process for business debts is about the same as consolidating other types of debt. Once you figure out which liabilities you want to consolidate, you use a loan to erase existing debt. After that, you make monthly payments of the same amount on that loan, as prescribed by agreed-upon terms with your lender.

But there are other things to understand, such as the difference between consolidated and refinanced debt.

Not The Same: Small Business Debt Consolidation And Business Debt Refinancing

As with debt consolidation, refinancing small business debt entails taking out a new loan. But, instead of multiple loans, you could opt to refinance a single business loan. Also, the chief aim of refinancing is typically to get a better interest rate on business debt. A lower interest rate usually means lower payments.

On the other hand, the goal of small business debt consolidation is to roll multiple loan payments into one to make repayment more manageable. Getting a reduced rate or payment is a bonus.

Would A Business Consolidation Loan Work For Me?

It depends. If you want a reduced interest rate, longer repayment terms, and a good shot at approval, it helps to have a favorable personal credit score, a good business credit score, and solid personal and business finances.

 Benefits Of Consolidation Loan

The advantages of a debt consolidation loan for business start with lower interest rates. If you can reduce your interest rate by consolidating, your business could save money.

You will also no longer have the hassle of managing multiple bills and due dates. And, your credit could improve. When lenders and vendors notice you have a record of eliminating debts on time, they may be more apt to lend to you in the future.

The Downsides To Business Debt Consolidation

For one thing, a lower interest rate depends on factors such as your credit score and other factors. So, the rate you ultimately get may not be lower than what you were doling out before you consolidated.

Another thing to consider is your loan payoff could be pricey. If you elongate the loan term to gain a lower payment, it will take you longer to eliminate the debt.

Also, consolidating your business debts may not fix entrenched cash flow problems.  If your expenses continue to increase while revenues falter, you could end up taking out more loans to keep your business afloat.

Options For Consolidating Business Debt

Try your bank first, especially if you have a good working relationship. Banks and credit unions can offer consolidation loans at favorable interest rates, with repayment terms that can stretch out to up to a decade.

Be mindful, though, qualifying for a bank loan can be difficult. Banks tend to favor businesses with established histories, solid revenues, and excellent credit scores.

You can also try the Small Business Administration (SBA), which offers several loan options for business owners, usually at competitive rates.

In addition, you can seek out an online lender. These lenders can offer competitive rates and terms, and you may be able to borrow more and with terms of up to five years.

Now that you know what to look for in a debt consolidation loan for business, you can weigh your options and decide whether such a move is in your and your company’s best interest.