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Business Debt Consolidation: How It Works and Best Loan Options

By Rosalie Murphy, Lisa A. Anthony
Last updated on January 2, 2024
Edited bySally Lauckner
Fact checked and reviewed

⏰ Estimated read time: 7 minutes

Although debt consolidation isn't right for every business, it may alleviate cash flow issues and make your finances easier to manage.

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A business debt consolidation loan can allow you to pay off existing loans and other debts with one new loan. Consolidating your business debt may help reduce your monthly payment amounts, shorten your repayment periods or both.
Lowering the interest rate on your existing debt can potentially save you money, depending on how long it takes you to pay off the loan. And reducing the amount of your debt payment each month can make it easier to manage your cash flow.
Established companies with strong finances will typically qualify for the lowest rates and longest repayment periods on business debt consolidation loans — as is the case with most small-business loans. If you own a newer business or have less-established credit, an online lender may be a better fit than a traditional bank.

How much do you need?

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We’ll start with a brief questionnaire to better understand the unique needs of your business.

Once we uncover your personalized matches, our team will consult you on the process moving forward.

Here are 6 business debt consolidation loans

LenderNerdWallet RatingMax loan amountMin. credit scoreNext steps

SBA 7(a) loan

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Best for SBA business debt consolidation loans

$5,000,000650

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Funding Circle - Online term loan

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4.5/5

Best for Long-term business debt consolidation loans

$500,000660

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OnDeck - Online term loan

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5.0/5

Best for Business credit card debt consolidation loans

$250,000625

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TAB Bank - Term loan

Best for Low-interest business debt consolidation loans

$300,000660

Fora Financial - Online term loan

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4.5/5

Best for Business debt consolidation loans for bad credit

$1,500,000500

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Accion Opportunity Fund - Small Business Working Capital Loan

4.0/5

Best for Business debt consolidation for women and minority groups

$250,000570

Here are 6 business debt consolidation loans

Best for SBA business debt consolidation loans

U.S. Small Business Administration

Max Amount

$5,000,000

Min. Credit Score

650

Best for Long-term business debt consolidation loans

Funding Circle

Max Amount

$500,000

Min. Credit Score

660

Best for Business credit card debt consolidation loans

OnDeck

Max Amount

$250,000

Min. Credit Score

625

Best for Low-interest business debt consolidation loans

TAB Bank

Max Amount

$300,000

Min. Credit Score

660

Best for Business debt consolidation loans for bad credit

Fora Financial

Max Amount

$1,500,000

Min. Credit Score

500

Best for Business debt consolidation for women and minority groups

Accion

Max Amount

$250,000

Min. Credit Score

570

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Our pick for

SBA business debt consolidation loans

The most popular of the SBA loans, 7(a) loans offer long-term, flexible financing — although they are slow to fund.

SBA 7(a) loan

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7(a) loans are issued by private lenders and backed by the SBA. They offer long repayment terms and low interest rates.
Lowest interest rate

Max loan

$5,000,000

Min. Credit score

650

Apr range

11.50-15.00%

7(a) loans are issued by private lenders and backed by the SBA. They offer long repayment terms and low interest rates.

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Our pick for

Long-term business debt consolidation loans

Funding Circle offers loans with repayment terms up to seven years. You can receive funding in as little as two days.

Funding Circle - Online term loan

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Funding Circle is an option for established businesses that are financing an expansion or refinancing debt.
May fund quickly

Max loan

$500,000

Min. Credit score

660

Apr range

15.22-45.00%

Funding Circle is an option for established businesses that are financing an expansion or refinancing debt.

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Our pick for

Business credit card debt consolidation loans

You can use a loan from OnDeck to consolidate business credit card debt, among other purposes.

OnDeck - Online term loan

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OnDeck offers a fast term loan for small-business owners with less-than-stellar credit who want to expand.
May fund quickly

Max loan

$250,000

Min. Credit score

625

Apr range

35.40-99.90%

OnDeck offers a fast term loan for small-business owners with less-than-stellar credit who want to expand.

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Our pick for

Low-interest business debt consolidation loans

TAB offers competitive interest rates and long repayment terms, and it can fund faster than other traditional lenders.

TAB Bank - Term loan

TAB Bank offers competitive interest rates for business owners with strong credit — and can sometimes fund faster than an SBA loan.

Max loan

$300,000

Min. Credit score

660

Apr range

8.99-35.99%

TAB Bank offers competitive interest rates for business owners with strong credit — and can sometimes fund faster than an SBA loan.

Our pick for

Business debt consolidation loans for bad credit

You may be able to qualify for a loan from Fora Financial with a minimum credit score of 500 or higher and at least six months in business.

Fora Financial - Online term loan

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Fora Financial can be a good fit for borrowers who may fall short of qualifying for traditional bank financing or young but established small businesses looking for speedy financing.

Max loan

$1,500,000

Min. Credit score

500

Fora Financial can be a good fit for borrowers who may fall short of qualifying for traditional bank financing or young but established small businesses looking for speedy financing.

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Our pick for

Business debt consolidation for women and minority groups

Accion Opportunity Fund provides term loans to businesses in traditionally underserved communities that can be used to consolidate debt among other purposes.

Accion Opportunity Fund - Small Business Working Capital Loan

Accion is a good option for businesses that haven't been able to secure traditional financing. The lender targets its funding efforts toward minority, women and low-to-moderate-income entrepreneurs.

Max loan

$250,000

Min. Credit score

570

Apr range

8.49-29.67%

Accion is a good option for businesses that haven't been able to secure traditional financing. The lender targets its funding efforts toward minority, women and low-to-moderate-income entrepreneurs.

How Much Do You Need?

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What is a business debt consolidation loan?

With business debt consolidation, you combine several existing loans, merchant cash advances or other types of debt into one new loan. This way, you have a single payment each month instead of multiple payments.
Some benefits of a debt consolidation loan could include a lower interest rate, lower monthly payments, a shorter repayment period or all three. If you don’t find any of these benefits, a debt consolidation loan may not be the best option for your business.
Note that business debt consolidation loans differ from debt refinancing — although the two are sometimes confused. Typically, the goal of refinancing a business loan is to get a new loan with more favorable terms to pay off an existing loan. It’s not to combine multiple debts into one loan, as is the case with a debt consolidation loan.

Types of debt consolidation loans

Several types of business loans can be used for debt consolidation. Here are a few options:

Bank loans

Loans from traditional banks typically offer the most competitive rates and terms. Bank business loans can be difficult to qualify for, however, requiring several years in business and excellent credit. These loans can also be slow to fund.

SBA loans

If you can’t qualify for a bank loan, SBA loans are a great alternative, offering competitive interest rates and long repayment terms. Because these loans are partially guaranteed by the U.S. Small Business Administration, it can be a little easier to qualify, but SBA lenders still usually require good credit and multiple years in business. And, like bank loans, SBA loans can be slow to fund.

Online loans

These loans may be a good option for newer businesses or those with fair or bad credit. Online business loans typically have flexible qualification requirements, although this can result in higher interest rates and shorter repayment terms. These loans tend to fund much more quickly than bank and SBA loans, however, often in days.

Nonprofit loans

There are nonprofit organizations that offer loans designed to benefit low-income and underserved communities that can be a good option for women, minority and veteran business owners. How the funds from these loans can be used varies by lender. Accion Opportunity Fund’s small business working capital loan can be used by a business to consolidate debt among other things.

How to consolidate business debt

The process of business debt consolidation will vary based on your existing debt, business qualifications and lender, among other factors. Here are a few steps to help you get started:

1. Determine how much you owe

You should start by determining the total debt you owe, including existing loan balances, repayment terms and interest rates. Also note whether any of your current loans have prepayment penalties if you pay off the balance before the end of the loan term.
Knowing your debts and the interest rates associated with each loan will help you determine which loans make sense to consolidate.

2. Evaluate your qualifications

Lenders use your personal credit score, business credit score, time in business and annual revenue to see whether you qualify for a loan. Although some online lenders are willing to work with borrowers who have low credit scores, you’ll get the most competitive rates and terms with a credit score of 650 or higher.

3. Compare business debt consolidation options

As you look at different business debt consolidation loans, you’ll want to research multiple lenders to see what they offer and compare factors such as interest rates, repayment terms, additional fees, funding speed, application process and customer service.

4. Gather documentation and apply

The consolidation loan application process will vary from lender to lender. In general, however, you’ll need to provide:
  • Basic information about you and your business.
  • Personal and business bank statements.
  • Personal and business tax returns.
  • Business financial statements.
  • Existing debt schedule.
After you submit your documentation, the lender will reach out if it needs additional information to underwrite your application.

5. Sign loan documents and pay off existing debts

If approved for a loan, you’ll be asked to sign the business loan agreement. You should review it thoroughly and reach out to your lender if you have questions or need clarification on any of the terms.
You may receive loan funds directly to pay off your existing debts or, in some cases, the lender may handle the payment of your debts. You’ll want to discuss the repayment processes ahead of time with your lender and also get details about when your first payment on the new loan is due.

Pros and cons of business debt consolidation loans

Pros

  • Simplified payments. By combining multiple existing debts into a single loan, it can be easier to manage your finances and loan payments. Instead of having to make several payments to different lenders, you make one payment to one lender every month.
  • Lower interest rates. Although this isn’t always the case, you may be able to secure a lower interest rate and decrease the interest costs on your debt.
  • Lower monthly payment. Sometimes a debt consolidation loan can result in a lower monthly payment and can help free up cash that you can use to cover day-to-day expenses. A lower payment may be due to a lower interest rate, smaller loan amount or longer loan term.

Cons

  • Longer repayment terms. Although longer repayment terms can lower your monthly payment and make repaying more manageable, you will be accruing interest over a longer period of time and could end up paying more in interest over the course of the loan.
  • Lower rates are not guaranteed. When you apply for business debt consolidation, you’re not guaranteed to receive a loan with lower interest rates than what you’re paying now. If you can’t access better rates, a consolidation loan may not be the right option for your business.
  • Additional fees. You may have to pay additional fees when taking out a debt consolidation loan — which can affect the potential money you save by consolidating. Your existing lenders may charge prepayment penalties for repaying early and you may also have to pay an origination fee on your new loan.

Alternatives to business debt consolidation loans

If you don’t qualify for a business debt consolidation loan or feel that it’s not the best option for your business, here are some alternatives:
  • Business loan refinance. If you can’t roll all your business debt into a single loan, refinancing one or more loans individually may be a good alternative. Some banks, like Bank of America, have business term loans that can be used to refinance equipment, vehicles or real estate. Like a business debt consolidation, you’ll want to make sure the refinance will meet your goal whether that's a lower interest rate, lower monthly payment or something else.
  • Restructuring a business loan. If you are finding it difficult to make monthly debt payments, you can reach out to your lenders to see if it is possible to restructure your loans or possibly make interest-only payments for a set period. While restructuring a business loan will typically affect your credit score, it’s likely to do less damage than defaulting on the debt.

Find the right business loan

The best business loan is generally the one with the lowest rates and most ideal terms. But other factors — like time to fund and your business’s qualifications — can help determine which option you should choose. NerdWallet recommends comparing small-business loans to find the right fit for your business.
Former NerdWallet writer Jackie Zimmermann contributed to this article.
Last updated on January 2, 2024

Methodology

NerdWallet’s review process evaluates and rates small-business loan products from both traditional and online lenders. We collect over 30 data points on each lender, taking into account features we consider to be small-business friendly, including: transparency of rates and terms, flexible payment options, fast funding times, accessible customer service, reporting of payments to business credit bureaus and responsible lending practices.
Each small-business loan option on this list meets the following criteria:
- Maximum loan amount of at least $250,000. - Transparent rates and repayment terms. - Funding available within two weeks of applying. - Personal credit score requirements of 660 or below. - No more than two years in business required.

Wondering if you qualify?

It’s possible to get a business loan even if you have bad credit. Bad-credit business loans are available from alternative sources, like online or nonprofit lenders.

Learn more

Frequently Asked Questions

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