Business debt consolidation allows you to combine several business loans or merchant cash advances into one loan. Consolidating loans not only streamlines debt into one convenient payment, but can also lead to a lower monthly payment and free up cash flow.
If your business is struggling to pay back a merchant cash advance (MCA), our debt relief specialists can help. Contact us today by completing the convenient intake form.
How Business Debt Consolidation Works
If you are carrying more than one business loan or multiple MCAs, you are likely making payments at different times each month, at different rates. Managing all this debt while you’re trying to run a business can be complicated and tie up your cash flow.
Business debt consolidation involves taking a new loan to pay off your existing business loans and other debt. Consolidating business debt works much like personal debt consolidation and gives you a chance to obtain a loan with a lower interest rate than what you’re currently paying.
To be effective, however, the new loans should cover all the outstanding debt you are looking to consolidate. For example, you may be offered a debt consolidation loan for $25,000 but your total current debt is $50,000. In this case, you need to obtain a loan with a higher maximum, provided that you meet the credit criteria.
What is the difference between consolidating and refinancing business debt?
There are a few key differences between business debt consolidation and refinancing. In a refinance, you are taking out a new loan to replace one loan – preferably with a lower interest rate and more manageable repayment terms.
By contrast, a debt consolidation loan combines many types of debt – including business loans, lines of credit, and merchant cash advances – into one loan. You then make one monthly payment on the new loan. If you previously consolidated business debt, however, it is also possible to refinance that single loan to take advantage of a lower interest rate.
Should you consolidate your small-business debt?
Business debt consolidation may be a good option if you want to streamline your payments, but you need to weigh the pros and cons.
Pros of Business Debt Consolidation
- More manageable payments – If you already have several loans with different payments, due dates, and interest rates, debt consolidation streamlines them, making it easier to keep track of what you owe and when you need to pay each month.
- Better cash flow – If you obtain a loan with a lower interest rate, your business will have more cash on hand each month to make important purchases, meet payroll, or to cover other business needs.
- Improved credit score – If you can manage monthly payments better with one loan payment, you will have a better payment history which will improve your credit score. This will give your business more credit options in the future.
Cons of Debt Consolidation
- Lower rates not guaranteed – Depending on your creditworthiness, you may not get a loan with a lower interest rate than what you’re currently paying now and could actually end up with a higher rate.
- Paying more interest over time – When you take out a debt consolidation loan, the loan terms start over. This means you may spend more time paying off your loan and possibly pay more total interest in the long term.
Business Debt Consolidation Options
If you’re considering consolidating your business debt, you have a few choices, including:
A variety of banks and lenders offer business loans, but you typically need to have been in business for at least two years and have a good credit rating to qualify.
Small Business Administration
Small Business Administration (SBA) loans are specifically designed for small businesses companies in financial need, especially those that are just starting out. In particular, SBA 7(a) loans can be used for business debt consolidation.
If you cannot tap traditional sources of funding, consider alternative methods, such as peer-to-peer lending companies that work with businesses that need cash but might not have an established operating history.
Business Debt Consolidation and Merchant Cash Advances
If you have taken one or more merchant cash advances and your business is going through a downturn, it is possible to consolidate those advances into one loan as long as you meet the credit criteria. Given that small businesses typically use MCAs because they do not have access to traditional sources of funding like bank loans and lines of credit, a business debt consolidation loan may not be a viable option.
However, merchant cash advance agreements typically include a reconciliation clause that requires the MCA provider to restructure the payment plan if your business experiences a receivables shortfall. By working with the experienced debt relief specialists at ReconcileMyMCA.com, you can reconcile your merchant cash advance and avoid defaulting. Contact us today to get started.