Business Funding

What is Business Debt Consolidation and How does it Work?

Read Time: 5 min

If you’re having trouble managing multiple loans, you may consider business debt consolidation. If you own a business, you likely rely on multiple funding streams to pay staff, order stock, and manage your company’s other financial obligations. Many businesses have multiple open loans and lines of credit, which can begin to cause financial issues and confusion. While there are many ways to manage your outstanding debt, one of the most popular and effective methods is to consolidate your business debt. In this guide, we’ll explore business debt consolidation, the advantages of business loan consolidation, and discuss everything you need to know about how to get a business debt consolidation loan.

What is Business Debt Consolidation?

Business debt consolidation is the process of combining multiple business loans into a single debt. In doing so, you can reduce the number of different payments you owe and negotiate lower interest rates.

If tracking multiple loans and debts is causing headaches, debt consolidation can make your financial obligations much more manageable.

How Does Debt Consolidation Work?

Business debt consolidation involves applying for a new loan that will cover your current debt obligations. Your new lender essentially buys your current debts so you can pay them off in full, leaving you with only one loan to manage.

By accessing a new loan at a lower interest rate than your current loans, you can:

  • Save money on your future interest payments
  • Benefit from only having a single payment date to remember

What is the difference between consolidation and refinancing for your business?

Business debt consolidation

The difference between debt consolidation and refinancing is that consolidation allows you to combine all your debt into a single loan while refinancing just means you’re renegotiating your interest rates.

Refinancing is a process in which you pay off a current loan with a new loan. In the process, you typically receive a lower interest rate on your new loan. The entire purpose of refinancing is to obtain better loan terms.

Debt consolidation, however, involves paying off multiple loans with a new loan. In some cases, you may not receive a lower interest rate.

There’s a lot of confusion surrounding these terms. This is because many debt consolidation lenders also let you refinance at a lower rate. So most debt consolidation includes a form of refinancing, while not all refinancing includes consolidation.

Business Debt Consolidation Loan Options

Fortunately, small business owners have a range of debt consolidation options at their disposal. Let’s explore the primary consolidation options in more detail.

Bank loans

One of the most common sources of business consolidation loans is a traditional bank loan. If you already have a relationship with your commercial lender, talk to them about their loan consolidation options.

Small Business Administration

If you’re struggling to get a traditional business loan, you may be able to use funding from the Small Business Administration. The SBA provides small business loan guarantees to traditional lenders, which may make it easier to get financing.

Alternative lenders

If you’re a new business, you may struggle to receive debt consolidation loans via traditional channels. Fortunately, there are now many alternative lenders online that offer this type of funding. Explore peer-to-peer lending options and other online loan providers to see if there are any suitable option for your business.

How to Consolidate your Business Debt with a Consolidation Loan

If you want to consolidate and refinance business debt, then it’s essential to take the correct steps throughout the process. Below, let’s explore how to consolidate your business debt.

Determine your goals for your business debt consolidation

First, begin by determining your business debt consolidation loan goals. For example, is your primary goal to reduce the number of payments you make or lower your interest rate? How much money does your business need to save to make consolidation worthwhile?

Understanding your goals will help you make the best debt consolidation decisions.

Decide which business debts to consolidate

Next, it’s time to decide which debts to consolidate. Debt consolidation doesn’t mean you have to consolidate all your debts–you can pick and choose. If you have some loans that are currently at very low interest rates, you may choose to exclude them from your consolidation plan.

For example, business credit card debt consolidation might make more sense than traditional business loan consolidation, depending on your current interest rates.

Start looking for small business consolidation loans

Now that you’ve chosen which loans to consolidate, it’s time to find a new loan that will cover your current debts.

  1. Compare your options. It’s never been easier to compare your lending options. Head online and explore interest rates and terms from multiple lenders–it’s the top way to ensure you’re receiving the best deal when you consolidate your business debt.
  2. Apply for your business debt consolidation loan. Once you choose a lender, it’s time to apply for a loan. Make sure to have all your relevant financial information ready–you will need it for your application. Your lender will likely need to check your business credit score.
  3. Start paying off your business debt with your new loan. With the funding you receive from your new loan, start paying off your old debts immediately. There’s no need to accrue extra interest payments if you can pay off these previous debts.

What are the Pros and Cons of Small Business Debt Consolidation?

Let’s explore the advantages and disadvantages of small business debt consolidation loans below:

Business debt consolidation


  • Reduce the number of payments your business needs to manage
  • Reduce overall payment frequency
  • Lower your current interest rates–and potentially save money on future interest payments
  • Switch to a lender that offers better customer service
  • Switch to a lender that offers more favorable loan terms


  • Your current lenders may require you to pay remaining interest or fees, which can reduce the advantages of consolidation
  • Your new loan may have a much longer payment term, which means you may pay back more interest over time

Should You Consider Debt Consolidation for your Business?

The decision to use debt consolidation depends on your business’s current debt profile, as well as a range of other factors. These other factors heavily depend on the lender you choose. One of the key elements to consider is the availability of debt consolidation loans–and whether their terms are better than those of your current loans. Either way, make sure to consider what’s best for your own business before making a decision.

Final Thoughts

If you’re ready to consolidate business debt, it’s critical to explore your options. Business loan consolidation is an excellent opportunity to lower your interest rate. Because of this, it’s essential to compare loans from various lenders. Take full advantage of business debt consolidation by making a choice that considers all of your business’s unique needs.

close icon
business funding money in hands icon

Next-day Funding with Little Documentation


By submitting this form, you consent to our terms. 3 months min. processing history required.

VeriSign Secured

Your information will not be distributed

close icon


By submitting this form, you consent to our terms. 3 months min. processing history required.

VeriSign Secured

Your information will not be distributed