Business debts can build up. With high costs of startup, ballooning operating inputs, economic fallouts, and other expenses, it can be a challenge to find the cash you need to stay afloat.
You may have turned to credit cards, hoping to float your business’s debts for the short term. Or perhaps you’ve leaned on loans and lines of credit to cover your cash needs. But when cash flows remain tight, your business may be overwhelmed by its debts and monthly interest requirements.
When this occurs, business debt consolidation loans may become an option you want to explore. In this article, we’ll explore those loans, the requirements for attaining them, the terms you might attain, and other options to consider.
What are debt consolidation loans?
Debt consolidation loans allow you to compile your high-interest business debts into a single loan you can repay, usually with reduced interest rates and relatively long repayment terms. Often, these loans create smaller, more manageable monthly debt payments.
Do these loans eliminate my debt?
No, debt consolidation loans don’t eliminate your business debt, but they are a strategy that can help you reduce the amount of interest you’re required to pay.
If you’re interested in reducing the amount of debt you must repay, either before or as an alternative to seeking a debt consolidation loan, talk with your business lenders or creditors. An attorney may also help you reduce your debt obligation by employing some standard practices.
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Help me understand the benefits.
There are lots of benefits to consolidating your debt with a debt consolidation loan. These may include:
- Streamlining your payment obligations into a single monthly payment
- Reducing the interest you pay each month
- Extending the term of your loan to reduce your payment obligations
- Having more cash on-hand each month to cover business expenses
- Creating a repayment plan that’s easier to keep up with, which can boost your credit score over the long term
- Reducing your overall credit utilization, which can also play a big role in boosting your business’s credit score
How do I obtain a debt consolidation loan for my business?
Banks, credit unions, and online lenders like Kapitus offer an assortment of debt consolidation options. The most popular options are SBA loans and term loans.
SBA loans are backed by the U.S. Small Business Administration. These loans offer favorable terms, including low interest rates. The SBA offers a number of programs you might consider, but the most popular is the 7(a) program, which allows borrowers to access up to $5 million. These loans are generally reserved for borrowers with businesses that are established, in operation for at least two years, and have good credit scores, but borrowers not meeting these terms may find some workable options.

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Term loans are another option. Banks, credit unions, and online lenders provide loans with competitive interest rates and repayment terms (up to 10 years) tailored to a borrower’s credit situation. However, many find that bank loans are difficult to obtain. Some report having more success with online lenders, though this set of lenders tends to offer loans with higher rates of interest and shorter repayment terms than conventional bank offerings.

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Other lenders, including peer-to-peer lending companies, also have options worth considering. Both LendingClub and Funding Circle have options for borrowers who may not meet other lenders’ requirements. Often, repayment terms extend up to five years, and funding of up to $500,000 is available.
For each type of loan, you’ll need to complete an application process. This process generally includes meeting with a loan officer and providing necessary financial documents. Often, these include:
- Personal and business tax returns
- Personal financial statements
- Lists of the businesses assets and liabilities
- Profit and loss statements
- Balance sheets
- Future sales projections
Lenders may also look into your business’s tax history, legal status, loan payment history, and asset titles to assess your current financial situation. Many will ask for a business plan to understand the robustness of your business.

What should I look for in a debt consolidation loan?
Loan terms are very important. Some of the factors you’ll want to weigh when making your loan selection include:
- The interest rate you’ll pay, which should be lower than what you’re currently being charged for your debts
- The length of the loan (in terms of months)
- The required monthly payment
- The ability to cover all of your debts through a single consolidation loan
- Loan fees and prepayment penalties
What can I do to boost my odds of approval?
Start by checking your business credit score (do so for free at annualcreditreport.com). Many lenders prefer working with businesses with credit scores of at least 650, but some will consider extending credit to businesses with scores above 500. If your score is low, look into some simple practices to help you boost it. This guide can help:

Next, be prepared with documents to show your ability to repay debt. Income statements and possible sources of collateral may be useful to banks extending loans.
Are there other options to consider?
Instead of consolidating your debt, you might consider refinancing it. Banks may allow you to take out a new loan to pay off one that’s outstanding. Sometimes, this practice can result in smaller monthly payments. This is true when interest rates fall or when the term of the loan can be stretched out over a longer period of time.
Rather than taking out a new loan, you might consider negotiating your credit card interest rates. In some cases, creditors will reduce interest rates considerably for business owners who simply request a lower rate.
Next, consider negotiating your debts. An attorney may help you work with creditors or lenders and settle your debts for pennies on the dollar. Keep in mind that this move may impact your business’s credit score and ability to attain future loans or lines of credit, but it can help you climb out of debt that’s overwhelming your business.
If your debt is unmanageable, you might also look into filing for bankruptcy. An attorney can help you assess your financial situation and determine if this option is viable for your business.
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What’s next?
Explore other options for finding funding for your business with this resource: Your Go-to Guide to Raising Capital for Your Small Business.

Then, log into your owner’s portal for more articles and step-by-step guides to optimize your business’s performance and navigate legal, tax, and financial issues impacting your business.