If you’re up to your ears in business debt, it’s time to re-evaluate.
The basic goal is simple: Get the lowest-rate loan you can qualify for, and pay it off in a timely manner as you grow your company. But small-business owners know it’s easy to get sucked into a debt cycle, especially when emergencies or dips in cash flow throw you a curve. Some business owners end up with “stacked” loans — multiple loans or merchant cash advances with annual percentage rates in the double or triple digits.
Consolidating or refinancing your debt could improve your cash flow, which can help you grow your business. To help you reduce your business debt, we evaluated four online lenders, ranking them from first to fourth based on cost of financing.
- Business debt consolidation versus refinancing
- No. 1 SmartBiz: Low rates for strong businesses
- No. 2 Funding Circle: Competitive APR for profitable companies
- No. 3 Fundation: Good choice for businesses with at least three employees
- No. 4 Dealstruck: Solid option for newer businesses
Business debt consolidation versus 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 online small-business loans can often be used for business debt consolidation and refinancing. Here are our top four picks to help get you back on track:
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No. 1 SmartBiz: Low rates for strong businesses
When combining your business debt into one bundle, you want the lowest possible rates. That makes SmartBiz your most attractive option. The online platform connects business owners with loans backed by the U.S. Small Business Administration, which offer the most competitive rates on the market. SmartBiz President Evan Singer says he’s seen a growing number of SmartBiz loans used for refinancing.
Pros: Low rates; government-backed loans
Cons: Your business and credit must be strong to qualify; the application process includes a lot of paperwork and can be tedious
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Before you apply for a SmartBiz loan, find out whether you meet the lender’s minimum qualifications.
Do I qualify? ▾
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No. 2 Funding Circle: Competitive APR for profitable companies
Funding Circle is a peer-to-peer lender offering small-business loans with terms of up to five years. Although the minimum credit score requirement of 620 is slightly higher than our other picks, Funding Circle offers a competitive APR range for healthy businesses. You need to have been profitable in one of the last two years. “While the majority of our loans are primarily used for expansion capital, many of our borrowers choose to use a portion of their funds to refinance higher-interest existing debt,” says Funding Circle’s head of communications, Liz Pollock.
Pros: Low APRs for borrowers with good credit; flexible term lengths
Cons: Young businesses likely won’t qualify; not for businesses with poor credit
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Before you apply for a Funding Circle loan, find out whether you meet the lender’s minimum qualifications.
Do I qualify? ▾
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No. 3 Fundation: Good choice if you have three or more workers
The goal of debt consolidation is the fewest loans and the lowest APR. With APRs starting at just 8%, Fundation can help you trim the cost of your high-interest loans. But the lender does have a requirement most lenders don’t: Your business needs to have at least three employees (including yourself) to be eligible. Up to one-fourth of Fundation borrowers use their loans for debt refinancing, according to a spokesman.
Pros: Competitive APR; lowest minimum loan size versus competitors
Cons: Must have at least three employees
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Before you apply for a Fundation loan, find out whether you meet the minimum qualifications.
Do I qualify? ▾
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No. 4 Dealstruck: Solid option for newer businesses
Pros: Need only one year in business to qualify
Cons: Lowest maximum loan size versus competitors
Dealstruck ranks fourth on our list because its APR is slightly higher than our other picks. About one-third of Dealstruck borrowers use the money for debt refinancing and consolidation, says Candace Klein, chief strategy officer. 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.
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Before you apply for a Dealstruck loan, find out whether you meet the lender’s minimum qualifications.
Do I qualify? ▾
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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
Jackie Zimmermann is a staff writer at NerdWallet, a personal finance website. Email: jzimmermann@nerdwallet.com. Twitter: @jackie_zm. 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 article was updated June 6, 2016. It originally published Dec. 4, 2015.
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