When does it make sense to get a business consolidation loan?

Before a business consolidates its loans, it should consider the following factors:

• Business history

• If the business has been in business for more than three years and has established credit, then it should have a good chance at obtaining favorable loan terms from a bank or the SBA. In particular, it should expect good loan terms if the business has grown a significant amount since its inception.

• Credit score

• If the personal credit score for the business owner and the business credit have improved since the business took out its original loans, then it should get a lower interest rate than before.

• Existing debt 

• If a business doesn’t have debt that is close to maturing, then it makes sense to proceed with a business consolidation loan. However, if there is debt that is close to being paid off, then it likely won’t be cost-effective or time-efficient to consolidate the debt.

• Terms for the new debt

• A business needs to ensure it qualifies for better terms then it currently has for it to make sense to consolidate its debt. If a business obtains a new loan with worse terms, then it sets itself up to fail. It should ensure the new loan’s repayment term and interest rate are going to be more favorable.