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Four Options for Business Debt Consolidation and Refinancing
Employer firms with between one and 499 employees make up 47.5% of the private-sector workforce and are labeled as small employer firms. As of 2020, 40% of small employer firms had an outstanding debt of up to $100,000.
What this means is that there are tons of Americans running their own businesses. And, in doing so, they might have taken on some debt to keep things running. Even businesses with bad credit need to take on new loans at times to stay afloat, but this can help to build good business credit.
Just as no one plans to get over their head in personal debt, no one plans to get over their head with business debt, either. So if you need to know how to refinance business debt or consolidate business debt, here’s our quick and dirty guide on how to make it happen.
The 4 best business debt refinancing and consolidation providers of 2020
- Dealstruck – Best for new businesses
- Funding Circle – Best lender marketplace
- SmartBiz – Best SBA loan
- Streetshares – Best for veterans
|APR||Loan Amount||Terms||Key Benefit|
|Dealstruck||starting at 9.99%||$5,000-$500,000||12 – 48 months||5- to 7-day funding time|
|Funding Circle||4.99%–27.79%||$25,000 – $500,000||6 – 60 months||Streamlined online application.|
|Smart Biz||7.99%–24.99%||$30,000 – $5,000,000||10 – 25 years||High loan amounts available.|
|Street Shares||9%–40%||$2,000 – $250,000||3 – 36 months||Wide variety of products available.|
What’s the difference between consolidating and refinancing?
Both business debt consolidation and business debt refinancing seek to improve an indebted businesses’ financial position, one through streamlining and the other through savings. While consolidation simplifies a person’s debts, refinancing business debt aims to save money on payments. Despite somewhat different goals, debt consolidation and debt refinancing often occur together.
Small business debt consolidation is when a variety of separate debts are compiled into one single debt, leading to a single interest rate and payment schedule to deal with. The goal of debt consolidation is to reduce the number of debts held. A reduction in interest paid is often sought after as well during debt consolidation, but it isn’t the primary purpose; instead, the objective is to streamline debt.
Small business debt refinancing is a method of debt replacement wherein a new debt is taken on, at a lower interest rate, to pay off existing debt. A typical example is when businesses take out a new loan at a lower interest to pay off an old loan. The goal when you refinance business debt isn’t to limit the number of debts held but instead to reduce the overall cost of interest being paid.
How does small business debt consolidation work?
Small business debt consolidation often comes in the form of a business consolidation loan that is then used to pay off existing debt. While these loans are often sizable, there are microloans for small businesses. This streamlines debt information and payments into one package and can also lead to a lower total interest amount paid on debts. As a result, this common form of debt consolidation is also a form of debt refinancing.
As a 2020 Fed Small Business survey showed 40% of small employer firms have an outstanding debt of up to $100,000. This debt often comes from operation costs but is also frequently tied to investments made into those businesses, in the form of building improvements, equipment and other expenses. For each of those businesses, if their debts consist of more than one loan, they may be able to consolidate those debts into one. If they can secure a lower interest rate while doing so, then they’ll be refinancing as well.
Not only does this process save businesses significant complications and stress around logistics, but it can save costs as well. Post-consolidation interest rates may be lower, but another significant factor is that fees and other costs are reduced by turning multiple debts into one debt. The first step in debt consolidation is to talk to a lender.
Pros and cons of business debt consolidation
|One monthly payment to one lender||New application and pull on credit|
|Typically means lower interest rate||New fees may apply|
|Lower number of fees||Former lending benefits are revoked|