Commercial Debt Consolidation Options

As the economy improves, the chances that the Federal Reserve increases the interest rate of its Fed Fund rate increases. If the Fed raises their benchmark rate, the entire lending industry will follow suit. If ever there was a time in which you were considering consolidating business debt, the chances of rates being lower probably won’t happen for many years, if not decades. 

If you are a business owner with multiple high-interest loans, you may find that the repaying multiple loans is both cumbersome and costly. The cost of the interest and fees on such loans are in effect lost profits. Depending on the type of loan you have outstanding, you may have restrictions on your accounts receivable, bank accounts and merchant processing because of the financing restrictions. 

The ideal situation may be to consolidate all of your debt into one single lower-interest loan that will make your ability to repay your debt easier, while improving your cash flow. 

Debt consolidation is the borrowing of a lower-interest business loan to pay off and eliminate several existing business loans that have higher interest rates. Oftentimes, by combining multiple loans into a single manageable loan, a company will reduce the monthly cost of servicing debt, and will free-up cash to use toward other operating costs of the business. 

Consolidating business and commercial debt through a bank is probably the most sought after choice when choosing a debt consolidation term loan because they other the best rates and longest terms and amortization periods of all types of business financing.

Banks offer the ability to consolidate a range of business debt including other bank loans, traditional and alternative lines-of-credit, credit cards, equipment loans, and other higher-interest debt into a single bank-rate financing facility.

But because banks offer the best rates and terms of all commercial lenders, they do have the highest credit, collateral and cash-flow requirements a company must meet to secure funding. 

SBA loans allow small business that meet the SBA requirements to refinance and consolidate business debt into a single facility with low interest rate and favorable terms and amortization period. 

The SBA doesn’t actually provide you with the loan, but instead guarantees a certain percentage of the SBA lender’s losses should a small business default on their loan.

By taking on some of the risk of the bank, the SBA helps ensure that banks and other SBA preferred lenders offer funding to small businesses that may not meet a bank’s lending requirements from a credit or cash-flow perspective. 

Alternative business consolidation financing may be a good option for a business that doesn’t quite meet the requirements for traditional bank financing or SBA funding. 

Alternative lenders tend to look at more than just a company’s credit score and debt-service-coverage-ratio to determine whether to fund a company. They also look at a company’s current cash flow and other metrics that banks and SBA lenders don’t look at.

While this type of funding doesn’t necessarily make sense if you’re looking to consolidate large bank rate loans, but they do make sense if you have multiple merchant cash advances and other high-interest rate liabilities (like credit cards).