If your business has multiple debts or is looking to reduce its debt repayments, a debt consolidation business loan can streamline and lower your interest repayments. This can save your business money and help you get out of debt sooner.
How does debt consolidation work?
Debt consolidation is the process of incorporating multiple debts or loans into one, with the goal of making it easier to manage repayments, reduce the cost of the debt, or refinance your existing loans with more favourable terms. As with personal debt, you can use a business loan to consolidate your business's debt into a single loan.
You will need to apply and be approved for a new loan which can cover your existing debts. You then use the funds from the new loan to pay off the amount(s) owing on your other debts, and then make repayments on the new loan until it has been paid off. If the new loan has a lower interest rate than your existing loans, you may also be able to reduce the size of your repayments and save money.
However, you need to be aware of any additional costs or fees that you will need to pay to ensure that debt consolidation makes financial sense for your business. This may include fees for paying off your existing loans early, as well as any other fees or charges associated with the new loan.
Is debt consolidation right for my business?
There are a number of situations where debt consolidation may be a good idea for your business. These include:
Your business has multiple debts or loans
If you are currently making repayments on multiple loans or finance, debt consolidation can streamline these payments into one. It may better suit your business's cash flow to make one regular larger payment, incorporating all your current debts, than many smaller payments on different schedules.
You have found a better loan product
Many businesses apply for finance with their existing bank and do not compare a range of options. If this is the case, you may have missed a business loan that is better suited to your business. If you believe your interest rate is too high, or your current payment schedule is unmanageable, it is always worth researching alternative loans to see if there are any that can offer more favourable terms.
Your personal credit score or financial situation has improved
Generally, when a lender assesses your business loan application, they take your personal finances and credit history into account. These can influence the loan terms you are offered, including the interest rate and size of the loan amount. If your financial situation or credit history has noticeably improved since you originally applied for your current loans, it may be worth checking to see if you're eligible for a new loan with better terms and rates.
Your business's finance or credit history has improved
As with your personal financial situation, if your business credit situation or finances have improved, you may be able to secure a consolidation loan that offers a lower rate to cover your existing debts.
Your business needs to borrow more
If your business needs access to more working capital but already has a number of debts, lenders may be unlikely to approve you for an additional loan. However, by consolidating your debts into a business loan with more favourable terms, you may reduce the risk you represent to the lender and may be approved for additional funds.
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, rates 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 rate is lower than your current rate.
The lender is reputable. You should always do your due diligence when comparing loan products. Try to confirm the lender is trustworthy and licensed before applying for a loan, especially if the loan terms seem too good to be true. You can check whether a lender is licensed to provide finance using the ASIC register.
What are my business debt consolidation options?
Generally, a business loan may be the most suitable option for a business looking to consolidate debt. However, you have a number of finance options to help consolidate business debt. These include:
Business line of credit. Unlike a normal business loan, a business line of credit gives you ongoing access to funds. If your existing debt is relatively small, a line of credit loan may be suitable. However, you will generally have a smaller window in which to repay the debt before you are charged additional fees or interest.
Business credit card. As with a business line of credit, a business credit card may be more appropriate for businesses looking to consolidate a small amount of debt.
Secured business loan. If you have access to an asset, such as a commercial or residential property, you can use it as security against a secured business loan. You will generally receive a lower rate with a secured loan, which may help reduce the size of your repayments if you use it to consolidate your debt. However, if you are unable to pay off the loan, you risk losing the property, so it's important to ensure you can manage the repayments before committing to a secured business loan.
What alternative options do I have to debt consolidation?
If you are struggling to pay your current business debts, there are several other avenues that you can take. These include:
Balance transfer business credit card
Instead of taking out a new loan to reduce the cost of your repayments, you could see if there are any business credit cards that have a balance transfer offer. Sometimes, a business credit card may offer a 0%, or low 2-3% introductory rate on balance transfers. This is a limited time promotional interest rate that allows you to move debt from your existing accounts onto the new card, thus reducing your interest repayments.
Be aware that a 0% or low interest period is limited (depending on the provider, but usually up to 3 years), after which you will likely be charged a much higher rate.
National debt helpline
If you want to speak to a professional on the phone about your business's money problems, you can call the National Debt Helpline for free financial counselling on 1800 007 007.
Create a budget
There are numerous free budgeting tools, templates and apps that could help you to create a strict budget for your business. Creating a budget and sticking to it may give you back some control and help you to meet your current debt obligations, without having to apply for a new loan.
Business liquidation
Business liquidation is usually what happens when your company becomes insolvent and is unable to pay its debts. While insolvency and liquidation may seem like the worst thing that could happen to your business, there may be some instances where liquidating is a beneficial move.
Liquidating your business means that your debts, including those to the ATO, are written off and/or dealt with in the liquidation process. That being said, it's a good idea to contact a professional adviser before making moves like this.
Why you can trust Finder's business loan experts
You pay nothing. Finder is free to use. And you pay the same as going direct. No markups, no hidden fees. Guaranteed.
You save time. We spend 100s of hours researching business loans so you can sort the gold from the junk faster.
You compare more. Our comparison tools bring you more business loans from across the market.
Tom Stelzer is a publisher and writer for Finder, covering investing and cryptocurrency.
He previously worked for Finder as a writer in Australia and the UK, covering things like personal finance, loans, investing, insurance as well as small business and business loans.
He has a Master of Media Arts and Production and Bachelor of Communications in Journalism from the University of Technology Sydney. See full bio
Bria Horne is a writer for Finder, with a specialist knowledge of personal loans, car loans and business loans. Originally from the UK, Bria has been a professional personal finance writer in Australia for over 2 years. She has an M.A and B.A in Philosophy and Literature from the University of Sussex, and previously worked on the UK’s leading hospitality publication. See full bio
How likely would you be to recommend Finder to a friend or colleague?
0
1
2
3
4
5
6
7
8
9
10
Very UnlikelyExtremely Likely
Required
Thank you for your feedback.
Our goal is to create the best possible product, and your thoughts, ideas and suggestions play a major role in helping us identify opportunities to improve.
Important information about this website
finder.com.au is one of Australia's leading comparison websites. We are committed to our readers and stands by our editorial principles
We try to take an open and transparent approach and provide a broad-based comparison service. However, you should be aware that while we are an independently owned service, our comparison service does not include all providers or all products available in the market.
Some product issuers may provide products or offer services through multiple brands, associated companies or different labeling arrangements. This can make it difficult for consumers to compare alternatives or identify the companies behind the products. However, we aim to provide information to enable consumers to understand these issues.
We make money by featuring products on our site. Compensation received from the providers featured on our site can influence which products we write about as well as where and how products appear on our page, but the order or placement of these products does not influence our assessment or opinions of them, nor is it an endorsement or recommendation for them.
Products marked as 'Top Pick', 'Promoted' or 'Advertisement' are prominently displayed either as a result of a commercial advertising arrangement or to highlight a particular product, provider or feature. Finder may receive remuneration from the Provider if you click on the related link, purchase or enquire about the product. Finder's decision to show a 'promoted' product is neither a recommendation that the product is appropriate for you nor an indication that the product is the best in its category. We encourage you to use the tools and information we provide to compare your options.
Where our site links to particular products or displays 'Go to site' buttons, we may receive a commission, referral fee or payment when you click on those buttons or apply for a product. You can learn more about how we make money.
When products are grouped in a table or list, the order in which they are initially sorted may be influenced by a range of factors including price, fees and discounts; commercial partnerships; product features; and brand popularity. We provide tools so you can sort and filter these lists to highlight features that matter to you.
Please read our website terms of use and privacy policy for more information about our services and our approach to privacy.
We update our data regularly, but information can change between updates. Confirm details with the provider you're interested in before making a decision.
You pay nothing. Finder is free to use. And you pay the same as going direct. No markups, no hidden fees. Guaranteed.
You save time. We spend 100s of hours researching business loans so you can sort the gold from the junk faster.
You compare more. Our comparison tools bring you more business loans from across the market.
