Business Debt Consolidation: A Small Business Guide

A solution for freeing up cash flow and simplifying finances.
Last updated Jan. 14, 2025
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Do you currently have multiple small business loans, all with different interest rates and repayment schedules? If so, a business debt consolidation loan can help you streamline your payments and, ideally, secure better rates in the process.
Consider a debt consolidation loan if:
  • Your current loans have high interest rates.
  • You have multiple short-term loans that you’d like more time to pay off.
  • You have solid personal credit, strong business and personal financials, and more than one year in business.
But be aware: It can be easy to get into an expensive and repetitive cycle. So make sure you have enough revenue coming in to cover the full amount of the new loan before you decide that this is the right solution for your business.

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Your credit score won't be impacted

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How Business Debt Consolidation Loans Work

Business debt isn’t a bad thing—in fact, taking on debt financing is one of the most common ways to finance business growth. Plus, paying off your debt on time can help build your business credit score.
However, sometimes you take on financing that’s expensive—when you need funding quickly, experience an emergency, or for a variety of different scenarios. Although taking on this debt may solve these needs in the moment, your rates may be expensive long term and can be a hindrance to your overall business finances.
It’s in these situations where you’ll likely want to consider business debt consolidation. If you’re struggling with multiple repayment schedules for multiple business loans, a small business debt consolidation loan can convert those multiple accounts and payments into a single loan product with a predictable interest rate and a single payment schedule.

Top 3 Business Debt Consolidation Loan Options

As you compare your options, you’ll want to look for a loan that will decrease your monthly payment and/or offer a lower interest rate than your current loans. Here are the top options to consider.

Traditional Bank Loans

A bank loan is one of the best ways to consolidate business debt—if you can qualify. Overall, bank loans have the lowest interest rates and longest terms, and these lenders also tend to issue large amounts of capital.
But it can be difficult to qualify for a bank loan, especially for the purpose of debt consolidation. You need to be a highly qualified borrower with multiple years in business, a strong credit score, and substantial revenue to qualify.
Large, national banks can help you consolidate your business debt, as well as community and regional banks.

Term Length3 to 10 years
Payment FrequencyMonthly
Interest Rates~6% to 13%

SBA 7(a) Loans

If you don’t qualify for a traditional bank loan, an SBA 7(a) loan is one of the next best options for consolidating business debt.
Loans within this program can be used for a variety of purposes, including refinancing existing business debt, although the SBA has strict eligibility requirements to qualify for its 7(a) loan program. In addition to those, if you’re planning to use the loan to refinance other debts, you’ll need to be able to show proof that your current debt has unreasonable terms and is intended for a purpose that fits within SBA eligibility criteria.
Like bank loans, SBA 7(a) loans are highly desirable because of their long terms and low interest rates. While SBA loans are more easily accessible than bank loans, they do require a lengthy application process and high qualifications. You can work with an SBA lender to apply for a 7(a) loan for business debt consolidation.

Term Length10 to 25 years
Payment FrequencyMonthly
Interest Rates~10% to 16%

Online Term Loans

If you’re having trouble qualifying for a business debt consolidation loan from a bank, credit union, or SBA lender, then turn your search to term loans offered by online or alternative lenders.
Online lenders tend to have more accessible qualification requirements and often have more streamlined applications, speedier approvals, and faster funding timeframes. Term lengths, interest rates, and even repayment schedules vary widely depending on the lender. Many online lenders offer short-term loans with terms between 12 and 24 months. You can, however, find some online business loans with terms up to seven years.
While you may have an easier time qualifying and applying for an online business debt consolidation loan, you’ll also likely be paying much higher rates and making payments more frequently than with a traditional or SBA loan.

Term Length6 months to 7 years
Payment FrequencyDaily, weekly, or monthly (varies by lender)
Interest Rates6% to 99%

How to Consolidate Business Debt in 6 Steps

Here are six simple steps you can follow to optimize your business debt consolidation.

1. Identify Current Business Debts

Look at your existing business loans and the details of each, including the outstanding amount, the lender, the interest rate, the maturity date, and the payment schedule.

2. Check for Prepayment Penalties

Using a debt consolidation loan to pay off smaller loans before their maturity date could trigger prepayment penalties—fees a lender may charge if you pay down part or all of your loan early.
Prepayment penalties can be expensive, so find out whether you’ll incur this fee on any loans before you pay them off to consolidate business debt.

3. Determine Total Business Debt and Calculate Average APR

Add up all of the loans you plan to consolidate, plus any prepayment penalties, to understand how much you’ll need to borrow for your business debt consolidation loan.
You also want to know the average annual percentage rate (APR) of your existing loans, so you know what kind of interest rate you’re looking for with your debt consolidation loan. It’s important to remember that APR is not the same as an interest rate. APR is the annualized interest of a loan, including all fees, and gives you an honest assessment of the cost of the loan.

4. Search for a Business Debt Consolidation Loan

At this point, you’re ready to look for the right business debt consolidation loan for you. You can start with the top options on our list and consider which loan product and lender will work best for your business.
Compare the APR of your old loans with that of the potential new loan. Ideally, your new loan will have a lower APR than the loans you are consolidating.

5. Decide Whether to Consolidate

Ultimately, you need to determine if the new loan makes sense for your business, given your specific finances and priorities. Consider these pros and cons as you weigh your decision:
Pros
  • Potential for a lower APR on new debt consolidation loan.
  • Can conserve cash flow.
  • May simplify repayment.
Cons
  • May pay more in interest over time if the new loan has a much longer term.
Consult your business accountant or other financial advisors if you need help sorting through the different business loan interest rates and terms.

6. Pay Off Existing Debts

Your new lender may either send you the funds to pay off your existing loans yourself or, in some cases, may settle those debts on your behalf. Be sure you understand how this process will work and all payment deadlines involved to ensure a smooth transition of debt.

Fundera Can Help

Curious to see what kind of small business financing you qualify for? Fill out one simple application with Fundera, and we’ll show you your options. This won’t impact your credit score, and there’s no obligation to get your funding through one of our partners.
Let’s get you funded!

How much do you need?

No cost to you

Your credit score won't be impacted

Compare multiple lenders with one application

Frequently asked questions

Yes, many lenders allow you to consolidate your existing business debt with a new loan—called a business debt consolidation loan.

With the funds from a business debt consolidation loan, you can pay off multiple, smaller loans; bundle all of your loan payments into one repayment schedule; and, hopefully, access lower interest rates and less-frequent payments.

Generally speaking, applying for any type of loan, including a debt consolidation loan, is likely to temporarily decrease your credit score because most lenders will conduct a hard credit inquiry as part of the application review process.

In the long term, though, you can use your business debt consolidation loan to more effectively pay off your debt and manage your finances, thereby improving your business credit score.

Like any other small business loan, there are a couple of instances in which a debt consolidation loan could hurt your credit:

If you fail to make your payments on time.

If you apply for additional loans or overextend your credit utilization while paying off the loan.

Debt consolidation loans are often most worthwhile when you have multiple loans and could benefit from a single loan with one repayment schedule with less-frequent payments—in other words, they’re a great solution for freeing up cash flow and simplifying finances.

It’s even better if you can access a business debt consolidation loan with a lower interest rate than the loans you’re consolidating.

However, debt consolidation can easily create an expensive and repetitive cycle, so you’ll want to make sure you have enough revenue coming in to cover the full amount of the new loan before you decide that this is the right solution for your business.