How do business consolidation loans work?

Businesses often take on multiple types of debt like installment loans, lines of credit and credit-card payments that usually have high interest rates. Business debt consolidation loans allow a business to restructure its debt and replace its high monthly payments with just one payment. 

Consolidating business debt is similar to consolidating other types of debt. The process works as follows:

• The business determines which loans or debts it wants to consolidate
• The business applies for a new debt consolidation loan
• Once approved, the business uses the funds to pay off the debt it wishes to consolidate
• The business makes a single payment on only the new loan moving forward

Overall, business debt consolidation provides an opportunity for businesses to do the following:

• Lengthen repayment terms
• Lower monthly payments
• Reduce interest rate
• Better oversee cash flow and liabilities
• Improve credit score
• Give flexibility to borrow more capital
• Simplify monthly bills to avoid missing any payments
• Reduce payment stress

In order to make sense, the new loan should have a lower interest rate and/or an extended repayment schedule than your existing debt, offering you more time to pay off your current loans with lower payments. Just note that you’ll pay more interest over time as you increase the length of the repayment term on your new loan. This may not be a bad proposition if current state monthly cash flow is highly important.

You may owe a fee to the new lender like an origination fee for loan processing. Be sure to run numbers and make certain a debt consolidation loan will indeed save you money and will not cost more than your existing financing.