Advantages and Disadvantages of Business Debt Consolidation

It might be worth considering a business debt consolidation if you are carrying multiple business loans. It is a great way to streamline your debt repayment into a single monthly payment, ideally at a lower interest rate. It can make repaying business debt more affordable and manageable, especially if you are consolidating high interest forms of financing credit cards, lines of credit or merchant cash advances.

Today we will discuss the advantages and disadvantages if you are considering business debt consolidation.


The following are advantages to small business owners that do debt consolidation.

Allows you to comfortably handle your monthly debt payments – companies look for debt consolidation when demands from their existing loans become untenable. Business owners can lower their monthly payments while they consolidate their debt. The low monthly payment is designed to be more manageable than prior debt payments to alleviate financial stress. A lower monthly payment is the main reason why companies get this type of financing.

Improves your cash flow - The smaller debt payment has a lower demand on your company’s cash flow. This frees up funds that can be deployed for other uses. The freed-up cash flow helps you pay suppliers on time, helps ensure you never miss payroll, and helps you grow the company.

You can focus on your growth – having an improved cash flow provides you with better control of your company’s finances. You no longer need to deal with supplier payments, delaying payroll, or postponing new projects. You can focus on growing your business and finding new clients.

Lowers interest rates – the debt consolidation package can reduce your company’s monthly payment in a few ways. It can extend the loan term over a longer period of time. It can provide a lower interest rate and result in a more manageable payment.

Can support future growth – when structuring a consolidation package, it must handle the current financial situation as well as handle some of your future financial needs. It can be hard to forecast future needs if the company has debt problems in the now.

Is available to small businesses – this type of financing is available to small companies and the requirements are fairly simple:

  • Needs at least $500,000 of financing
  • Have at least 3 years of business history
  • Have up-to-date taxes or a payment plan in place
  • Have equipment or real estate

Is easier to manage

Debt consolidation solution might have a single payer or two payers if they have a growth tier. This makes it easier to manage than the prior situation of having multiple loans with different payments.


Although there are several advantages, it is not a perfect solution for your financial problems. The following disadvantages should be considered.

Extend the term of your debt

We mentioned that longer payment terms could be an advantage in the section above. They reduce your monthly payment, which can help stabilize your business. But this stability comes at a cost. The total cost of all the payments made over the life loan will usually be higher.

Require discipline to avoid repeating past problems

Companies that got into trouble by getting too many loans need discipline so that they do not make the same mistake. Easy financing during a down term might be tempting but it does come at a high cost. You will not be able to get new debt consolidation if past problems keep repeating themselves. This could mean business failure.

Do not fix a bad business model

It will not fix a bad business. If your business model has flaws or other problems, debt consolidation will not help. All it means is that it will push the problems to the future.

The Bottom Line

There are several advantages and disadvantages to debt consolidation. If you are unsure if it is right for your company, seek the help of a professional. Investing money for having expert advice will ensure that you make the right decision. A good accountant can give you the right guidance to help you out.