Business Debt Consolidation


While the increase in commercial debt slowed — and even declined — during the financial crisis, we’ve seen a steady increase in quarterly and year-over-year total U.S. commercial debt. For many business owners during the crisis, simply obtaining capital for their businesses was a challenge, let alone obtaining true bank-rate financing. With limited options available to small businesses, many relied on loans and other forms of debt financing to maintain cash-flow and handle other business needs. With a decrease in the availability of bank loans, many small business owners resorted to taking out loans from high-risk online lenders that offer easy availability to fast cash, but with very high interest and factor rates, along with a number of fees. Because these high-risk business lenders look to reduce their risk-exposure, they generally provide shorter-term loans to avoid a long repayment schedule during which a company could fail, and the lender left with few options to get paid-back. But since the repayment terms are short with these types of small business loans, they

require large weekly or even daily repayments that cause severe stress to a company’s cash-flow.

What is Business Debt Consolidation?

Consolidation of business debt is the combining of multiple loans and debt obligations into a single loan. It’s not to be confused with refinancing a business loan, which is paying off of a higher-rate loan by getting a business loan with a lower-rate. The purpose of debt consolidation is to reduce the amount a company regularly pays to service their debt, by combining all debt into a single facility and thereby easing their short-term ability to pay back their commercial debt. Business debt consolidation is different than refinancing business debt, being that the primary purpose of consolidation of business debt may not actually reduce the interest rate a company or small business currently pays to service multiple loans. But in combining all the loans into one financing facility, the company may free up cash-flow.

Why Would a Small Business Need to Consolidate Commercial Loans?

  • Combine multiple business loans

  • Lower debt service payments

  • Possibly reduce interest rate

  • Extend terms related to debt

  • Free up cash

Small Business Options to Consolidate Loans


Loan options to consolidate commercial loans and business debt are usually offered by traditional banks (either through term loans or lines-of-credit). With that having been said, there are alternative lending options to consolidate a company’s debt. Let’s take a look at the various loan options and financing facilities used to consolidate company loans and debt.

Small Business Consolidation Loans Through a Bank


Consolidation loans through traditional banks (large banks, small banks, community banks) are usually provided through a standard term loan financing facility, but a small company may be able to obtain a line-of-credit while consolidating multiple business loans (as banks see it in their best interest to provide sufficient working capital to make sure the company is successful, thus: increasing their chances of being paid-back). Bank loans for consolidating small business debt is usually the ideal way to consolidate such commercial debt because banks offer the best rates and terms of all commercial lenders. They are able to offer superior loan products because they take minimal risk. So if the business has issues with cash-flow and declining or no profits, they may find it hard to obtain this type of business loan.

  • Bank consolidation loan rates: 5-10%

  • Bank consolition loan terms: 3-25 years

SBA Consolidation Loans


SBA loans to consolidate business debt isn’t easy to obtain. Usually the SBA will not refinance or consolidate business debt that the SBA lender wouldn’t have provided or found acceptable to begin with. But there are situation where a small business can consolidate loans and debt to increase cash-flow using the SBA 7(a) loan program. Unfortunately, a small business rarely is awarded a loan to refinance or consolidate an existing SBA loan, being that the original loans were obtained at rates and terms deemed acceptable by the SBA.

  • SBA consolidation loan rates: 6-8%

  • SBA consolidation loan terms: 7-25 years

Merchant Cash Advance Consolidation


Merchant cash advance consolidation financing is when a factoring or cash advance lender buys-out 2nd, 3rd, 4th and 5th position cash advances and consolidates all the advances into just one advance with one single daily or weekly payment and a longer term. Most advance companies require the merchant to onet, at least, 25% new financing.

  • Factor rates: 1.16-1.50

  • Terms: 6-24 months

Alternative Small Business Consolidation Loans


If a company is unable to secure financing to consolidate existing small business loans and debt, they may explore some of the alternative lending options. Alternative lenders usually offer term loans and other financing products to consolidate smaller amounts of business debt. With the lack of access to bank rate financing having become difficult to obtain, many small businesses have resorted to relying on high-rate, short-term, and overall expensive merchant cash advances to provide cash-flow. But in doing so, these borrowers often find themselves in a trap of constantly needing to take-out or renew multiple merchant cash advances. In order to escape this debt trap, an option available to many businesses is to have the cash advances bought out and combined into a single real loan (as opposed to a business cash advance). By combing the loans into a single financing facility, the small company is often able to dramatically improve cash flow because multiple debt payments to various creditors is combined into a single loan with extended terms (reducing the daily, weekly, monthly payments).

  • Alternative consolidation loan rates: 8-30%

  • Alternative consolidation loan terms: 1-5 years

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