Understanding business debt consolidation loans
Can you get a business loan to consolidate debt?
If you’re juggling multiple business debts – credit cards, working capital loans, equipment financing, vendor bills – you’re not alone. Managing several due dates and interest rates can squeeze cash flow and make budgeting a headache. One possible way to simplify things is a business debt consolidation loan: a new loan used to pay off existing debts so you’re left with one payment to manage.
Let’s walk through what business debt consolidation is, when it makes sense, what types of loans can be used, and what to consider before you apply.
What is business debt consolidation?
Business debt consolidation works much like personal debt consolidation. You take out a new loan or line of credit and use it to pay off multiple existing debts. After that, you focus on repaying one loan, usually with a monthly fixed payment.
The goal is often to improve your situation in at least one of these ways:
Lower monthly payments
Reduce payment frequency (for example, switching daily/weekly payments to monthly)
Lower interest costs
You won’t always get all three at once. Sometimes consolidation lowers your payment but extends your loan term, which can increase total interest paid over time. So it’s important to know what matters most for your business before choosing an option.
When a business consolidation loan can be a good idea
A consolidation loan is worth considering if it clearly improves your financial picture. Common reasons include:
You might qualify for a lower interest rate
If your current debt includes high-interest products like business credit cards or short-term working capital loans, rolling them into a lower-rate loan or line of credit may reduce costs.
You’re struggling to keep up with multiple debts
When you’re making several payments across different lenders, consolidation can create breathing room – one due date, one payment structure, one plan.
You want simpler budgeting
Consolidation can reduce the administrative load of tracking many balances and payment schedules.
Cons
New financing may cost more overall if the term is longer
You may pay additional fees for the new loan
Your existing lenders may charge prepayment penalties for early payoff
Applying can temporarily lower your credit score because of a hard credit inquiry, though consistent on-time payments may help scores over time
Pros
Roll multiple payments into one loan
Simplify bookkeeping and budgeting
Potentially lower interest rates
Potentially lower monthly payments (sometimes through a longer term)
What types of business loans can be used to consolidate debt?
There are several ways to consolidate business debt. The right one depends on your credit, cash flow, time in business, and what you’re trying to achieve.
Traditional bank or credit union loans
Banks often offer strong rates and terms, but typically have stricter requirements:
Often want at least two years in business
Prefer positive cash flow
Prefer good to excellent credit
SBA loans (especially SBA 7(a))
Some SBA loans can be used to refinance existing debt, particularly when it improves cash flow.
SBA 7(a) loans may offer lower rates and longer terms
Still generally require good credit and paperwork
They can take longer to fund than online options
Business lines of credit
These work like credit cards: you draw as needed and pay interest on what you use.
Flexible and accessible
Can help build business credit
May come with higher rates and multiple fees depending on the lender
Online or alternative lenders
A common fit for:
Newer businesses
Businesses with fair or bad credit
Those needing faster funding
Tradeoff: higher rates and shorter terms are typical compared with bank or SBA loans.
Other consolidation/refinancing routes
Depending on your assets and revenue model, consolidation can also happen through:
Multi-year term loans
Commercial mortgage refinance
Accounts receivable financing (if you’re B2B and have strong receivables)
Equipment refinancing
Short-term to mid-term consolidation products (sometimes requiring you to borrow more than you currently owe)
Microloans through CDFIs or SBA microloan programs
Business credit cards with balance transfer offers in certain cases
Home equity or personal loans (possible, but risky because personal assets are on the line)
How to consolidate business debt step by step
Gather all loan documentation: List balances, interest or factor rates, repayment periods, payment frequency, lenders, and any prepayment penalties.
Review your credit: Lenders may look at both personal and business credit. Checking beforehand lets you correct errors and set expectations.
Choose a consolidation strategy: Decide what matters most: lower payments, monthly payments instead of daily/weekly, lower costs, or a mix.
Compare lenders and products: Look at APR/fees, term length, funding time, and repayment structure.
Apply: Expect to submit business tax returns, financial statements, bank statements, and a debt schedule.
Use the funds to pay off existing debts: Once approved, you pay off the old loans and continue with the new single payment.
What lenders look at to approve you
Lender review generally includes:
Time in business (often 2+ years for banks/SBA)
Personal and/or business credit scores
Online lenders may accept lower scores, but competitive terms are often tied to a score around the mid-600s or higher
Revenue and cash flow consistency
Debt obligations and debt-to-income/affordability
Collateral (depends on loan type)
Bank statement behavior like frequency of deposits or negative balance days
What if you can’t qualify?
If consolidation isn’t possible – or doesn’t actually improve your situation – these alternatives may help:
Refinance or restructure existing loans
Refinancing replaces one loan with a new one, ideally at a lower rate or payment.
Restructuring means negotiating modified terms with lenders (like deferrals or extensions).
Create a debt payoff strategy
You might prioritize either:
Paying off smallest balances first to reduce number of debts, or
Paying off highest-interest debts first to reduce cost over time.
Improve financial position
Cut expenses, increase revenue, or negotiate better terms – sometimes this is safer than taking on a new loan if you can’t get meaningful savings.
Final Thoughts
Yes – you can get a business loan to consolidate debt, and it can be a smart move if it lowers your cost, simplifies payments, or improves cash flow.
But consolidation isn’t automatically better. A longer repayment period may reduce monthly pressure while costing more over the full term. Fees and prepayment penalties can also change the math. The best consolidation loan is one that clearly improves your situation, not one that simply swaps debts without real savings or sustainability.
Note: This material is for informational use only and does not constitute financial, legal, or investment advice.
