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Compare business debt consolidation loans

Bundling your debts into one monthly payment can help your business take control of its finances.

Struggling with cash flow? Have too many bills to keep track of? Think your business can qualify for a better rate? A debt consolidation loan can simplify your repayments by bundling your debts into one. You can also take advantage of better rates, lower monthly payments and reduce the overall cost of your debt – making it easier to stay on top of your repayments.

How does business debt consolidation work?

Consolidating your business debt involves taking out a term loan to pay off multiple existing business debts. These existing debts could include term loans, credit card balances, merchant cash advances and any other type of business financing that you’re currently repaying. By using the funds from your debt consolidation loan to pay off your existing debts, you can then focus on paying off your new loan with hopefully lower rates and more favourable repayment terms.

Debt consolidation can be especially beneficial if your business can qualify for more competitive rates – you’ll save money while simplifying your monthly payments. But you can also use it simply to make it easier to keep track of your business’s cash flow or adjust your monthly repayments.

What's the difference between debt consolidation and refinancing?

The main difference between debt consolidation and refinancing is that debt consolidation involves multiple debts, and refinancing only involves one. Refinancing can help you save on interest if your business qualifies for a more competitive rate. But it isn’t as useful if your business has multiple debts that it’s struggling to pay off.

That said, some lenders use refinancing and consolidation to refer to the same thing — you can use the loan to pay off multiple debts or just one.

Benefits of consolidating your business’s debt

  • Save on interest. If your business is eligible for a lower rate than you currently pay on most of your debts, you could save on both long- and short-term costs.
  • Lower repayments. Consolidating your debts with a longer term can make repayments more manageable for your business and free up extra cash for day-to-day costs.
  • Only one payment. Multiple payments take a bit more work to keep track of. Debt consolidation can simplify your business accounts so you can worry about more important things.
  • Access to more credit. If you have multiple business credit cards and lines of credit, consolidating your debt can free up your credit limits.
  • Makes repayments predictable. If your business has debt with a variable interest rate, consolidating to a loan with fixed interest can make it easier to budget.

Drawbacks of debt consolidation

  • You might pay more in interest. Lengthening your loan term might lower your monthly repayments, but it can increase the total cost of your loan.
  • It won’t solve all debt problems. Debt consolidation can make it easier for your business to manage its debt, but that won’t change the amount it owes. If your business is drowning in debt, debt consolidation might not have much of an effect.
  • Potential personal guarantee. Many business lenders require a personal guarantee from the owners when taking out a term loan. This means that you’re responsible for paying off the debt if your business can’t.

What to consider when looking at business debt consolidation

While using a business loan for debt consolidation can be a useful tool for managing and reducing debt, you should keep the following in mind to make sure you’re getting a better deal.

  • Compare the loan terms, rate and fees. Before applying for a debt consolidation loan, you should check that the interest rate and fee structure are more favourable than your existing loan(s). If you apply for a loan with a higher rate, or additional fees, you may end up paying more than if you were to stick with your existing loans. You should also consider the loan term. While having a longer time in which to pay off the loan may help your business manage repayments, you may end up paying more in interest on a loan with a longer loan term, even if the advertised interest is lower than your current rate.
  • The lender is reputable. You should always do your due diligence when comparing loan products. You should try to confirm the lender is trustworthy and licensed in your province or territory before applying for a loan, especially if the loan terms seem too good to be true.

Should I consolidate my business’s debt?

Debt consolidation isn’t always a good idea. You might be able to benefit from debt consolidation if one or more of the following scenarios applies:

  • You’re paying off high-interest loans. Your business needed emergency funds or couldn’t qualify for a competitive rate when it needed funding. Consolidating your debt can help you pay off your debts at more favourable rates and terms.
  • Your personal credit has improved. Lenders tend to consider the owner’s personal credit score when a business applies for a loan. If your personal credit has improved since your business first took on debt, it could be eligible for a lower rate.
  • You want to lower your monthly repayments. Even if your business can’t qualify for lower rates, consolidating debt for a longer loan term can help free up cash and eliminate the need to take on more debt for working capital. But a longer loan term will mean paying more in interest over the life of the loan.
  • Your business has stronger finances. Higher revenue typically means that your business is eligible to take on more debt and qualify for more financing than it had before. You could also qualify for better rates and terms with a higher revenue.
  • You’ve reached the one-year mark. Young businesses often have a hard time qualifying for funding at all, let alone competitive rates. Consolidating after your business reaches the one-year mark can help your business save on any high-interest debt it took on during its startup phase.
  • You can now offer up collateral. If you couldn’t offer collateral before but you can now, you could lock in a lower rate and term by taking out a secured loan. Remember that you can lose your collateral should you default on a secured loan.

Bottom line

Consolidating your business’s debt can be a useful way to manage its finances. Debt consolidation can cut down on the short- or long-term costs of your loan, help you save by getting you a lower rate and can make your monthly payments easier to keep track of. But if your business is really struggling to pay off debt, a debt consolidation loan might not help much. Instead, you may want to look into debt relief programs.

To learn more about how business financing works and compare lenders, read our guide to business loans.

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