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Small Business Debt Consolidation & Debt Relief

Elizabeth Johnson

Financial Advisor
Updated: 01/2019

Small Business Debt Consolidation & Debt Relief

Owning and running your own small business can be one of the most rewarding things you ever do. However, it can be tricky to balance the obligations your business has while maintaining growth. Many small businesses obtain some kind of credit to help them grow. Sometimes the payments on this credit can undermine a small business’s ability to function. As a result, small business owners everywhere have been increasingly interested in small business debt relief to help them get on the right track and improve their business.

There are several different options available if your small business is drowning in debt. We’ll go over some of the most popular and effective methods. As a result, you’ll know what to do to get your business running smoothly while decreasing the burden of outstanding debts.

How to Consolidate Debt as a Small Business

  1. Make a List of all of your Business Debt
  2. Find Out Your Total Business Debt to Consolidate
  3. Calculate Your Average APR
  4. Identify the Best Small Business Debt Consolidation Loan
  5. Decide Whether The New Loan Fits Your Business Objectives
  6. Complete your New Loan Agreement
  7. Make Simple and Easy Payments

Small Business Consolidation Loans

One of the best options for dealing with debt for small business owners is to seek a small business consolidation loan. These loans aren’t available for everyone, and you’ll want to check your options to make sure you qualify. There are several banks, organizations, and non-profits that offer these loans.

The advantage of a small business consolidation loan is that these loans frequently have lower interest rates than the loans that created your original debt. This is especially true if your debts are the result of credit card use. Obtaining a consolidation loan lets you lower your monthly payments, as the lower interest rate means that you’ll need to pay less each month to stay current on your balance. Moreover, the lower interest rate also means that you’ll save money over the course of the loan. Depending on how much you owe and what the interest rates are, you can save tens or even hundreds of thousands of dollars over the life of your loan by consolidating it.

Another advantage to small business consolidation loans is that they simplify your accounting process. Having all of your debts combined into one easy-to-track loan means that you don’t have to worry about different due dates. Moreover, you can see the progress you’re making on your total debt, providing a psychological boost to help you keep going.

Small business consolidation loans aren’t without risk, however. Some small businesses might have trouble qualifying for the loan. Moreover, these loans can take five years or longer to pay off, meaning that you’ll be dealing with debt for an extended period of time. Additionally, interest will continue to accrue over the course of the loan, which limits the amount of real savings you can generate. Therefore, it’s important to consider the real effects of a consolidation loan when you’re looking for small business debt relief.

Small Business Debt Consolidation & Debt Relief

Small Business Bankruptcy

It’s a sad fact that thousands of small business owners are forced to declare bankruptcy every year. Bankruptcy is a last-resort option for small business owners, and you should only declare bankruptcy if you’ve exhausted all of your other solutions. However, bankruptcy can still be a useful strategy for dealing with debt for small business owners.

There are several kinds of bankruptcy for small business owners. Two of them, Chapter 11 and Chapter 13 are known as restructuring. These forms of bankruptcy initiate a process where small business owners can renegotiate the terms of their credit cards and unsecured loans. As a result, you can get more favorable payment terms and get your business running again. Most small businesses use Chapter 11 bankruptcy. Chapter 13 bankruptcy is usually used for individuals who are in debt. Therefore, the way that your small business is structured will play a large part in selecting the best bankruptcy option for your small business.

Moreover, depending on the size and makeup of your business, the restructuring process could involve selling off different business assets to help generate more capital. This might include equipment, property, or intellectual and intangible assets like patents and trademarks.

Chapter 11 and Chapter 13 bankruptcy allow you to keep running your business so you have a chance to come back. However, if your business is irreparably damaged by debt then you might have to declare Chapter 7 bankruptcy, which involves a complete liquidation of business assets. The money from this liquidation is then divided among your creditors.

Small Business Debt Relief

The final option for small business debt is small business debt relief. This process involves negotiating new terms with your creditors outside the bankruptcy framework. Therefore, it provides many of the benefits of bankruptcy without some of the drawbacks.

An advantage of small business debt relief is that nearly any debt can be eligible. Moreover, the process of debt settlement can be faster than debt consolidation loans, which means it can help get your business humming again sooner. Moreover, debt relief and debt settlement for small businesses has a softer impact on your credit score than declaring bankruptcy, which can virtually eliminate any chance that you’ll be eligible for credit and loans at affordable interest rates.

There are several different companies and agencies that specialize in small business debt relief. These organizations can help you understand the process of settling your debts and can establish a framework for the settlement that will make everything go smoother. While you don’t need to use these groups to start debt settlement negotiations, the expert knowledge and years of experience they provide can be a tremendous boon when it comes to getting the best results from your debt relief process.

Small businesses are one of the things that help make the world we live in as wonderful as it is. Moreover, your small business is your life, so it deserves every chance you can give it. Small business consolidation loans, small business debt relief, and small business bankruptcy can help your business overcome the troubling situation it’s in. However, you should be careful to consider the drawbacks that come with these options when you’re trying to determine the best option for your small business. After all, the goal is to improve the financial health of your business, not to set yourself up in an even worse situation.

Small Business Debt Consolidation & Debt Relief

Your Options for Small Business Debt Consolidation Loans

The most optimal business consolidation loans include secured and unsecured loans that are primarily long-term debt consolidation loans. It is imperative to ensure that the loan you choose for your debt consolidation loan has a longer-term life than your existing funding. Besides this basic guideline, the other options to consider when it comes to choosing the right business debt consolidation loan requires a closer look at your specific situation. Factors you will need to account for include the age of your small business, the revenue your business produces on a monthly to yearly basis, and your credit score. Below is a list of some of the best long-term debt consolidation loans to help you manage your small business debt burden.

Traditional Bank Loans

The option of a traditional bank loan is the best option to consolidate your loan if you are able to qualify for one. This is due to the fact that bank loans traditionally have a very low-interest rate in comparison to other types of loans. Additionally, they are the loans with the lowest interest rates and the longest terms available and they are known for their capacity to lend very large loan amounts.

In general, a traditional bank loan offers:

  • Payment intervals: Monthly
  • Interest rates: Typically less than 10%
  • Length of term: Usually around 10 years

Qualifying for a bank loan

For small business owners interested in debt consolidation using a bank loan, large banks such as Chase and Wells Fargo are options to consider. However, it is important to keep in mind that qualifying for a bank loan can be challenging. This is due to the fact that banks usually only approve the most qualified applicants. The factors that will affect your approval rates include the length of time that the small business has been in operation, the amount of revenue the business generates, and the borrower’s credit score. Upon qualifying for a loan with a bank, the SBA business debt schedule will vary depending on the terms you have agreed to. However, the majority of small business debt consolidation loan terms will have a monthly payment schedule. Your bank loan officer can also provide you with relevant small business debt advice regarding which steps to take to help your small business to become debt free.

SBA Loans

The next loan type to take into consideration is an SBA loan. The most requested type of SBA loan is an SBA 7(a) loan. This type of loan can go as high as $5 million and is fully guaranteed by the Small Business Administration (SBA). SBA loans are loans that are made by direct lenders or banks that are backed up by the Small Business Administration. Since these loans are fully backed up, they are easier to qualify for when compared to a traditional bank loan.

An SBA loan offers:

  • Payment intervals: Monthly
  • Interest rates: Typically begins at 6.75%
  • Length of term: between 7 – 25 years

Business debt loans that are guaranteed by the SBA have long-term lengths and are typified by lower interest rates. However, just like a standard bank loan, SBA loans require a strong credit and revenue profile in order to qualify. Additional factors that will be considered during the qualification process include small business debt to income ratio, the revenue of the business, the credit score, and the length of time that the business has been in operation.

Wil Lenders Look at My Personal Credit Score?

Many business owners worry about what lenders look into when they make a consolidation loan decision. The type of financial information you need to provide will depend on the lender and the length of time your business has been in operation. For individuals who have young businesses, you may find it harder to get a consolidation loan without providing your personal credit score. If your businesses credit score is not high enough, you might not be able to get the financing you need to consolidate your debt without a personal credit check.

For this reason, it's always important to maintain a solid personal credit score. Not doing so will prevent you from consolidating your business debt if you don't have a solid business history.

Small Business Debt Consolidation: Prioritizing Cash Flow

If you're currently paying outrageous amount of money on high-interest debt, you won't be able to maintain the amount of working capital you need to run an effective business. Using small business debt consolidation is one of the easiest ways to see drastic improvements in your cash flow. Your businesses cash influxes will no longer be spent on covering debt costs. Many small business owners think that taking out new debt is the key to increasing working capital. But if you don't use this new financing to pay off your current obligations, you may be shooting yourself in the foot.

If you're able to reconsolidate at a much lower rate, this can be a great way to see immediate improvements in your businesses working capital. Stop thinking of other ways to improve your current cash flow and start looking into debt consolidation – especially if you're currently paying high interest rates.

Take Advantage of Your Business's Reputation

If you're a business owner that has developed a good reputation, it's time to take advantage of it. Often, young business owners are offered high interest rates because they haven't built trust with lenders. As time goes on, business owners are able to take advantage of lower rates as their business payment history improves. Don't be complacent with your old interest rates if your situation has improved.

If you feel like your current financials and business track record will provide you with lower interest rates, don't let complacency cost your money. Refinancing and consolidating your small business debt is the prudent action to take. The best small business owners are always on the hunt for more affordable financing.

Small Business Debt Consolidation & Debt Relief

Understanding Business Consolidation Loan Basics

Although a small business debt consolidation loan may seem like the perfect solution to overwhelming debt, it is important to look at the entire picture prior to making a decision. Debt consolidation can ensure that all of your small business debt loans are combined into one, lower interest rate, easier to manage, loan. With just one, low monthly payment and a longer time period within which to pay off the loan you can enjoy a much more stress-free loan repayment process. Understanding the basics of business loan consolidation facts can assist small business owners with making the best possible decision for the financial needs of their business.

Generally, a business debt consolidation loan is for small businesses who don’t have the revenue to make the payments on their existing loans. With a small business debt consolidation loan, businesses that have multiple accounts with different lenders can now convert those accounts into one single loan product with a lower and much more predictable interest rate. Whether a business owner chooses to enter into a small business debt relief program or they find their own lenders to consolidate their debt, the benefits are many and can help a business avoid having to file for bankruptcy.

Business Loan Debt Consolidation Vs. Refinancing

Business owners seeking a reduced debt load may be looking into the possibility of refinancing their loan or using a debt consolidation loan to create one single monthly payment. These two options each come with various benefits and disadvantages to consider prior to making a decision. By obtaining sound business debt advice and investigating all of your options for business debt restructuring, you can uncover the best solutions for better debt management.


When a borrower refinances their debt, they are taking out a brand new loan at a reduced interest rate in order to pay off a higher rate loan or multiple loans.

Small Business Debt Consolidation

When a small business chooses the option for debt consolidation, they are taking out one single loan to replace multiple loans.

In essence, debt consolidation can be thought of as a form of refinancing, however not every type of refinanced loan is a debt consolidation. When one single loan is replaced with another at a lower interest rate, then this is considered refinancing. However, when multiple loans are converted into one single loan, then this can be thought of as debt consolidation.

Another important point to note is that debt consolidation does not automatically provide you with a lower rate on your new loan. This is because the primary purpose of the debt consolidation is to save you money while also making your payments more manageable over time. In this situation, you may get more agreeable payment terms, however, the interest rate may remain the same on the new loan. Prior to taking out a debt consolidation loan, it is important to do sufficient research and perform your due diligence to make certain you are choosing a reputable company with a good track record. It’s truly important to ensure that consolidating your business debt is the best solution to your debt management concerns.

Small business owners wondering how to get out of business debt may be searching for the most favorable option that is a match to their needs and goals. Small business debt consolidation is often the solution that many businesses turn to when they want to reduce their debt load over time. For businesses who want to refinance business debt, it helps to ensure that there is only one loan that needs refinancing instead of multiple loans which would be better suited to a debt consolidation plan.

Small Business Debt Consolidation & Debt Relief

7 Steps to Effective Debt Consolidation

When it comes to debt consolidation, it is beneficial to have a plan in order to guarantee the best possible outcome for your business goals. When applying for a small business debt consolidation loan, following the steps outlined below can help you to improve your chances of having successful results with your debt consolidation efforts. A solid debt consolidation business plan is an excellent starting point for any business owner who is considering small business debt consolidation.

Step 1 – Make a list of all of your business debt

The first step of effective debt consolidation is making a list of all of your current business debt. It is beneficial to look into the details of your loans and make a note of the balances left to pay off, the interest rate, lender, maturity date, and the current payment schedule. It is also helpful to note whether any of your small business loans have prepayment penalties. If they do, then expect to be charged more for paying off these loans ahead of time.

Step 2 – Find Out Your Total Business Debt to Consolidate

Once you have completed the previous step, your next step is to figure out which loans would be beneficial to consolidate. Add up all the debt you have and then you will have the total loan amount that you will need to consolidate.

Step 3 –  Calculate Your Average APR

The third step to a successful debt consolidation process is to calculate your total amount as well as the APR for each loan and then get the average APR you will be paying. When making the decision to transfer the existing debt on your loans to one single loan, it is beneficial to know what your APR is so you can ensure that your new loan is lower than it. Small business owners should also know that their APR is not the same things as their interest rate. An APR rate is the annualized interest of the loan which is also comprised of all of the fees and provides a straightforward picture of the entire cost of the loan.

Step 4 – Identify the Best Small Business Debt Consolidation Loan

Once you have assessed your current loan situation, you are in the right position to select a new loan provider. By identifying the best small business debt consolidation loan provider, you can then get started on the process of applying for a loan with your desired lender. Some ways to complete your search involve looking for online lenders, comparing loan products offered at local banks, and investigating alternative lending sources. See what loans you are able to qualify for in order to find the best loan options available based on the financial condition of your business.

Step 5 – Decide Whether The New Loan Fits Your Business Objectives

Once you have thoroughly investigated your options including comparing your old APR and the APR of the new loans, you will be in a position to make an informed decision. If the APR on the new debt consolidation loan is lower, then this is a positive step in the right direction, however, there are also other factors to consider. Small business owners will need to see if they will be paying more in interest if the new loan has longer terms. They will also need to see if the new loan fits your long-term goals and objectives better than your existing loans.

Step 6 – Complete your New Loan Agreement

If all of the details of your new loan terms are agreeable to you, then you can proceed to sign the paperwork and make use of the capital to pay off all of your existing debts. In a debt consolidation, the money won’t actually go into your business bank account since it will be divided up among your existing lenders and used to pay off your old balances. Once this has been completed, you will have one primary lender that you will make payments to. 

Step 7 – Make Simple and Easy Payments

Once your new loan has been consolidated, you will be able to focus on making simple and easy bi-monthly payments or making one monthly payment. Make sure to remain in good standing with your loan so that your credit isn’t negatively affected and so that you can avoid additional fees.

If you have been wondering how to get your business out of debt, following these simple steps is the best way to get started.

Business Debt Consolidation Advantages & Disadvantages

Business debt can quickly add up over time as a small business owner continues to take out different loans with lenders to cover various expenses. Over the course of the business growth, ebbs and flows in revenue may be experienced which affects the business’ ability to repay their loans. Business debt relief can prove useful as a business tries to get back to sound financial footing. By comparing the advantages and disadvantages of taking out a debt consolidation loan, business owners can make the choices that are most beneficial to their businesses.

The Advantages of Debt consolidation

Save on Cash Flow

Debts owed by a business are called liabilities and these include notes payable, accounts payable, inventory loans, equipment loans, and other similar debt that a business must pay. With so many payments going out, it can be hard for a business to see any real profit. One way to save on cash flow is by consolidating all of those individual loans so that there is only one simple monthly payment to focus on. The new loan will typically have a lower interest rate as well as a longer term which equates to smaller and more manageable payments.

Simplifies Repayment

With just one monthly payment to contend with, monthly payments are simplified. Sometimes with multiple loans, it can be easy to miss a payment causing a business to begin to get behind in their business debt schedule. Thankfully with debt consolidation, there is only one loan which eliminates the chances of this confusion with repayment.

The Disadvantages of Debt Consolidation

The disadvantages of debt consolidation vary so it is important to consider all of the facts carefully in order    to make the best possible decision.

Double Interest on Your Loan

Small business owners favor business consolidation loans because of the fact that they have lower interest rates and they also reduce the total number and amount of payments each month. However, when consolidating debt, the principal plus the interest are being paid down which means you are paying interest on your initial loan with the interest added in. Your business debt consolidation loan will essentially compound on the interest you were originally paying.

Not a One Size Fits All Solution

A business debt settlement or small business loan consolidation is not necessarily a one size fits all solution for every business. If a business is facing small business debt collection, this may be indicative of poor money management planning. If a business took on more loans than it could handle, then this could show that more money management skills are needed. If a business falls behind in their debt settlement payments, they will be in a similar position as they were when they started the debt consolidation process.

Like all financial tools, small business debt consolidation can work well for your organization if you follow a step by step plan and tailor it to the unique needs of your business. Comparing the benefits and disadvantages of small business loan consolidation can assist you with making the best possible decision for your business needs.

Signs A Debt Consolidation Loan May Be Right or Your Business

Read the list below to see which points describe your business and your current financial situation. This will help you to decide whether or not a debt consolidation loan may be the best solution to help with business debt.

  • You have many different high-interest loans
  • You have strong personal credit
  • You want to extend your short term loans
  • Your business finances have improved
  • Your personal finances have improved
  • Your business is over one year old


A business debt consolidation loan is not necessarily the best option for every type of small business. It is essential to take your time and compare the lenders that are available to help you. Small business debt can feel very overwhelming if it is not managed efficiently. By obtaining debt counseling and considering options in small business debt consolidation and debt relief, small business owners will have the options they need to redefine their financial success.

Elizabeth Johnson

Elizabeth is an expert on Debt Consolidation as she provides helpful advice to people who are dealing with debt problems. She graduated college with a BS in Finance. After college, she took a job working at a non-profit debt counseling program. It was at this position where Elizabeth honed her expertise for helping people understand how different financial products work and finding ways to help people pay off their debts.