Business Debt Consolidation to Free Up Your Cash Flow

If you’re up to your ears in business debt, it’s time to reevaluate.

Having one or more small-business loans or merchant cash advances with annual percentage rates in the double or triple digits can suffocate your cash flow. Refinancing and business debt consolidation are two ways to cut your interest rates, and online lenders might be able to help.

What you need to know about business debt consolidation and options for loans:

• Business loan consolidation vs. refinancing
• Fast debt relief, if you have $150,000+ annual revenue
• Debt consolidation in days, if your business has at least 3 employees
• Reasonable refinancing rates, if your credit score is 620+
• Lowest rates, if you have good credit and a healthy business

Business debt consolidation vs. refinancing

When you refinance business debt, you take out a lower-interest loan to pay off one that has higher interest. Consolidation combines several loans or merchant cash advances into one loan. Of businesses that applied for financing in the first half of 2014, 15% needed debt consolidation or refinancing, according to a survey by the Federal Reserve Banks of New York, Atlanta, Cleveland and Philadelphia.

An increasing number of borrowers with bad credit have multiple high-interest small-business loans and merchant cash advances. This is known as loan stacking and can happen when borrowers fail to qualify for a large, low-interest small-business loan. To compensate, they take out multiple smaller loans with high interest. Jerry Silberman, founder of debt-restructuring service Corporate Turnaround, has seen small-business owners with as many as 10 merchant cash advances.

If you have multiple high-interest small-business loans or merchant cash advances, there’s no way you will qualify for a traditional bank loan to refinance, Silberman says. But many online small-business loans can be used for business debt consolidation and refinancing.

We’ve listed some of your best options:
[back to the top]

For businesses with $150,000+ annual revenue that want to refinance fast

	Minimum qualifications	Typical borrower
Personal credit score	600	660 to 700
Time in business	1 year	About 5 years
Annual revenue	$150,000	About $1 million to $2 million

Dealstruck’s financing products include small-business term loans, asset-based lines of credit and inventory lines of credit. About one-third of Dealstruck borrowers use the money for debt refinancing and consolidation, says Chief Strategy Officer Candace Klein. For those who qualify, the lender typically extends a term loan to pay off the existing debt and a line of credit to cover ongoing working capital needs, Klein says.

Dealstruck’s lending terms

• Loan amount: $50,000 to $250,000
• APR: 11% to 28%
• Loan term: 6 months to 4 years
• Time to approval and funding: 2 days to 2 weeks.  Read our detailed story about the Dealstruck business loan application process.

[back to the top]

For businesses that want to consolidate debt and have at least 3 employees

	Minimum qualifications	Typical borrower
Credit score	600	680 to 720
Time in business	2 years	5 to 10 years
Annual revenue	$100,000	$250,000 to $750,000

Founded in 2011, Fundation offers online small-business loans with terms of up to four years. The lender has a minimum requirement that most lenders don’t: You need to have at least three employees (including yourself) to be eligible. Up to one-fourth of Fundation borrowers use their loans for debt refinancing, a spokesman for the lender said by email.

Fundation’s lending terms

• Loan amount: $20,000 to $500,000
• APR: 8% to 30%
• Loan term: 1 to 4 years
• Approval time: 3 to 5 days.

[back to the top]

For business owners with a 620 personal credit score or higher

	Minimum qualifications	Typical borrower
Personal credit score	620	Average is 700
Time in business	2 years	About 10 years
Annual revenue	$150,000	About $2 million

Funding Circle is a peer-to-peer lender offering small-business loans with terms of up to five years. The lender requires that borrowers have at least a 620 personal credit score, slightly higher than the 600 minimum that Dealstruck and Fundation require. (SmartBiz doesn’t have a minimum credit score, but most of its borrowers have scores higher than 600.) Although most Funding Circle borrowers use the loan money to grow their businesses, many also use it to refinance debt, says Funding Circle’s head of communications, Liz Pollock.

Funding Circle’s lending terms

• Loan amount: $25,000 to $500,000
• APR: 8% to 33%
• Loan term: 1 to 5 years
• Time to approval and funding: 4 to 10 days. Read our detailed story on the loan application process at Funding Circle.

[back to the top]

For established businesses with strong finances: SmartBiz

	Minimum qualifications	Typical borrower
Personal credit score	No minimum listed, but most borrowers have a personal FICO score of 600 or higher	Average is 705
Time in business	2 years	About 10 years
Annual revenue	No minimum listed, but most borrowers make at least $50,000	About $1 million

SmartBiz is an online platform that connects business owners with loans backed by the U.S. Small Business Administration. SBA loans are among the least expensive loan options. You need good credit and a healthy business, and you must meet SBA requirements to qualify for SmartBiz. The lender has noticed more small-business owners using SmartBiz loans to refinance debt than in the past, says General Manager Evan Singer.

SmartBiz’s lending terms

• Loan amount: $30,000 to $350,000
• APR: 7% to 8%
• Loan term: 10 years
• Time to approval and funding: SmartBiz’s government-backed loans require a lot of paperwork. If you gather and submit items quickly, you can be approved within seven days of submitting your application. But depending on the documents required and requested, the process could stretch to weeks. Read our detailed story on the SmartBiz application process.

Business debt consolidation: the bottom line

If you’re considering business debt consolidation or refinancing, the online loans listed above could help. Debt refinancing means taking out a new loan to pay off an existing loan at a lower interest rate. Business debt consolidation is a type of refinancing, but it refers specifically to using one new, lower-interest loan to pay off multiple higher-interest loans.

If you meet the minimum requirements, apply for all of these online loans and choose the one that offers you the lowest APR. Unlike with credit cards, applying for multiple loans won’t hurt your credit score because the credit bureaus recognize the value of shopping around for the best rate. As long as you apply for the small-business loans within a short time frame (about two weeks), all of the credit pulls will count as just one hard inquiry.

Find and compare small-business loans

NerdWallet has come up with a list of the best small-business loans to meet your needs and goals. We gauged lender trustworthiness, market scope and user experience, among other factors, and arranged the lenders by categories that include your revenue and how long you’ve been in business.

Compare business loans

Teddy Nykiel is a staff writer at NerdWallet, a personal finance website. Email: teddy@nerdwallet.com. Twitter: @teddynykiel.

To get more information about funding options and compare them for your small business, visit NerdWallet’s small-business loans page. For free, personalized answers to questions about financing your business, visit the Small Business section of NerdWallet’s Ask an Advisor page.

This story has been updated. It was originally published on November 2, 2015. 

 

---

Image via iStock.

BEFORE APPLYING, DOUBLE CHECK THAT YOU MEET Dealstruck’s MINIMUM QUALIFICATIONS.

• Have you been in business for at least a year?
• Does your business make $150,000 in annual revenue?
• Is your business profitable?
• Is your personal credit score 600 or higher?

If you answered “yes” to all, visit Dealstruck’s secure site:   If you answered “no” to any of these questions, let us help you find a lender that’s a better fit:  

BEFORE APPLYING, DOUBLE CHECK THAT YOU MEET Funding Circle’s MINIMUM QUALIFICATIONS.

• Have you been in business for at least two years?
• Does your business generate $150,000 in annual revenue?
• Has your business been profitable at least one of the last two years?
• Is your personal credit score 620 or higher?

If you answered “yes” to all, visit Funding Circle’s secure site:   If you answered “no” to any of these questions, let us help you find a lender that’s a better fit:  

BEFORE APPLYING, DOUBLE CHECK THAT YOU MEET Fundation’s MINIMUM QUALIFICATIONS.

• Have you been in business for at least two years?
• Does your business generate $100,000 in annual revenue?
• Is your personal credit score 600 or higher?
• Do you have at least three employees?

If you answered “yes” to these questions, visit Fundation’s secure site:   If you answered “no” to any of these questions, let us help you find a lender that’s a better fit:  

BEFORE APPLYING, DOUBLE CHECK THAT YOU MEET SmartBiz’s MINIMUM QUALIFICATIONS.

• Have you been in business for at least two years?
• Does your business make $50,000 a year?
• Is your personal credit score 600 or higher?
• Were you free of personal bankruptcy in the last three years?

If you answered “yes” to these questions, visit SmartBiz’s secure site:   If you answered “no” to any of these questions, let us help you find a lender that’s a better fit: