Page written by Chris Godfrey. Last reviewed on October 19, 2024. Next review due January 1, 2025.
Business debt consolidation and refinancing may reduce their monthly payments, give them longer to repay, and even free up cash to meet urgent business needs. How does this work? Read on to find out if consolidating or refinancing your current business loans is right for you.
Business debt consolidation means combining multiple loans from multiple lenders into a large, single loan from one provider. The new loan is used to pay off the older loans, and it may be paid back over the same or a longer or shorter time period than the previous agreements.
Business debt consolidation may deliver multiple benefits:
Top tip: check to see if you must pay early repayment penalties on the old loans, and what fees the new lender may charge before you commit to debt consolidation. Also, remember that if you take out a loan for a longer period, even if the interest rate is lower than before, you may still end up paying more overall.
Business refinancing is much like debt consolidation, except instead of taking out a new loan to pay off multiple loans, you only take out one new loan to refinance one old loan at a time.
The benefits of business refinancing are much like business debt consolidation:
Refinancing means swapping one loan for another. Depending on the type of loan you are trying to refinance, and the purpose of the loan, there are several options to refinance your current business loans.
Popular refinancing loan solutions include:
These loans may be offered on a secured or unsecured basis. (See below).
Secured loans require the borrower to provide collateral (security) to protect the lender from potential loss. Collateral is usually hard assets, such as property or machinery, but it may also include inventory, the value of unpaid invoices, and certain soft assets, such as patents and copyrights.
If the borrower defaults on the loan, the lender may choose to exercise their lien on the collateral and sell the assets to recover the funds they have lent.
Unsecured loans require no collateral, but they usually come with higher interest rates and fees. They many also offer a lower loan amount than a secured loan will bring. The borrower’s credit rating is more important with unsecured loans and a good credit score is usually required.
Top tip: don’t get caught out by an error on your credit report, always check your business and personal credit scores before you apply for loan refinancing (secured or unsecured).
Not sure whether you should refinance? With our refinance calculator you can estimate the savings and costs associated with refinancing.
This calculator is intended for illustration purposes only and exact payment terms should be agreed with a lender before taking out a loan.
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Borrow €The payments for your debt consolidation loan are determined by taking into account the total amount of debt you intend to consolidate (the sum you want to borrow), the length of time you plan to borrow it, and the fees associated with borrowing this money. A lender will use the annual representative rate (APR) on this total to provide you with a consistent monthly payment throughout the course of your loan.
Absolutely! You do have the right to repay a personal loan before its due date or increase your monthly payments. However, it’s important to note that this could potentially result in an early repayment charge.
Consolidating debt might lead to a brief decrease in your credit score, however, it has the potential to improve your rating going forward.
Securing approval for a loan may require a hard search, which leaves a trace on your credit report. This could potentially lower your credit score and remain visible to other lenders.
However, debt consolidation loans could eventually contribute to a better credit score, as having a single monthly payment can streamline the process, making it more manageable for you to consistently pay on time.
If consolidating or refinancing your current loans is not sufficient to help your business, there are other options to relieve business debts that you may wish to consider:
Consolidating or refinancing business debt can be complicated and may take longer than many businesses can wait. Don’t waste time going from lender to lender. Working with a broker who can quickly provide many different funding options is a better way to go. Register with Swoop to discover all your consolidation and refinancing options. Reshape your debts. Give your business a new lease of life.
Chris is a freelance copywriter and content creator. He has been active in the marketing, advertising, and publishing industries for more than twenty-five years. Writing for Barclays Bank, Metro Bank, Wells Fargo, ABN Amro, Quidco, Legal and General, Inshur Zego, AIG, Met Life, State Farm, Direct Line, insurers and pension funds, his words have appeared online and in print to inform, entertain and explain the complex world of consumer and business finance and insurance.
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