When to Consider a Business Debt Consolidation Loan

First Seacoast Bank • January 20, 2023
Woman opens up her business with a smile on her face.

When it comes to turning the business you’ve always dreamed of into reality, many of us utilize some type of business loan to get started. Few have the finances or cash flow available to take their idea to the next step. As we’ve talked about before, about 43% of businesses applied for a loan to help cover operating expenses or invest in a new opportunity in 2019. Similarly, 70% of businesses have some form of outstanding debt.

With so many different types of business loans available, it’s not unexpected that you may end up with a few you need to pay off. Each will have its own interest rate or repayment schedule, which can be difficult to manage on top of your other daily tasks. That’s where business debt consolidation loans can come in handy.

In this post, we’ll walk you through how business debt consolidation loans work, if they’re right for you, and how working with a financial partner like First Seacoast Bank can help you get started and manage the process along the way.

How Does a Business Debt Consolidation Loan Work?

If you’ve ever consolidated personal debt, this process isn’t going to look different to you. While everyone’s situation is different, there are a few common steps you’ll take to apply for this type of loan:

  • Decide which loans you want to consolidate: You don’t need to consolidate all of your debt, though you can if that makes sense for your situation. By taking a look at all of your loans, repayment requirements, and interest rates, you can decide which would be best for this path.
  • Figure out where you want to look for a loan: Both brick-and-mortar banks and online lenders may be able to help you with a business debt consolidation loan. However, you’ll want to make sure that you know the terms and conditions before you apply. 
  • Get organized: Your lender may ask for different documents during the application process, so be sure you know exactly where to find those. This includes tax returns, bank statements, personal/business credit reports (which you’ll want to make sure are healthy as well), and a copy of your business plan.

From there, you can start your application and be one step closer to consolidating your debts. Leveraging this type of loan will not only put all your debts in one place, but possibly give you a lower interest rate as well. Best of all, you can use whatever savings you now have to invest back into your business, whether that be tackling that renovation you’ve had on your list for a while now or giving your employees a well-deserved raise.

Types of Business Debt Consolidation Loan

If you’re looking to consolidate your business debt, there are three main options you can choose from:

  • Bank loans: This is often the first place many look when it comes to finding a business or personal loan, so it makes sense to start here. Banks or credit unions are able to offer business debt consolidation loans with competitive interest rates and repayment terms that may be as long as 10 years. If you have a trusted bank you’ve worked with in the past (like First Seacoast Bank), you may also be qualified for discounts or reduced fees. However, you’ll want to make sure you’re in a strong spot since these types of loans are often harder to qualify for. You’ll want to have a few years of operation, solid revenue, and a healthy credit score.
  • Small Business Administration (SBA) loans: There are several loan programs from the SBA that can be used for consolidation, like their 7(a) loan, where you can borrow up to $5 million. SBA loans offer competitive rates like bank loans and can be a more realistic option for newer businesses or those with less-than-perfect credit.
  • Alternative lenders: Online lenders often have consolidation loans that you can apply for with competitive rates and terms. These typically extend up to five years. Be sure to research who these lenders are before you apply to ensure they’re reputable and trustworthy partners.

First Seacoast Bank is Your Preferred Lending Partner

Our mission is to help your business succeed. That’s why we offer flexible banking solutions designed to fit what you need. When you’re ready to apply, we’ll work with you through the entire process. To learn more or get started, contact our business banking team today.