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How can I consolidate my business debts?

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Updated: 29th April 2021

Consolidating multiple business debts into a single loan may be advisable if you’re paying a high rate of interest on your existing borrowing, or the overall cost of servicing your debts is too high.

The situation may be negatively affecting your cash flow, so what can you do to ease your business’ financial situation, or make sure you’re not overpaying unnecessarily? If you have numerous loans and business debts, consolidating them means you make a single payment each month instead of multiple repayments.  

How does consolidation work for business debts?

A consolidation loan is one that incorporates several debts and loans – perhaps a business overdraft, credit card, and one or more bank loans - enabling your business to make a single repayment each month.

This avoids paying several sets of interest, fees, charges, and potentially late payment penalties if you’re struggling to repay. Consolidation loans can make your business finances simpler, and easier for you to keep track.

What happens when I refinance my business debts?

Refinancing is another term for business debt consolidation. It provides the opportunity to negotiate better terms and conditions for business borrowing. This might include a lower interest rate, for example, or longer loan term that reduces the pressure on your working capital.

Consolidating business debts may not be right for all businesses. It’s crucial for the business to be able to repay the consolidation loan without problems, and this might mean restricting further borrowing in many cases.

Where the circumstances are right, however, consolidating business debts can provide your business with a new lease of life. So where do you start when considering business debt consolidation?

What are business consolidation loans?

Two main types of consolidation loans exist – secured loans and unsecured loans. Secured loans involve putting up a significant asset as collateral – typically property, land, or vehicles.

The lender is protected from default by being able to repossess the asset if necessary, and sell it to recoup their money. Clearly, this is a more risky option for your business as you might lose the asset secured on the loan if you can’t repay.

Unsecured loans are less risky for you but more risky for the lender, which is why they typically carry a higher interest rate. Other terms and conditions are also likely to be less favourable, and your business’ credit rating needs to be good to obtain an unsecured business consolidation loan.

How can I consolidate my business debts?

It’s always advisable to seek professional advice before applying for a business consolidation loan. As we mentioned earlier, they aren’t right for all businesses and you risk making your financial situation worse if it isn’t suitable.

Real Business Rescue can assess your business and present your best options for improving cash flow, and dealing with any debts that threaten to become unmanageable. We can identify the right type of loan for your business, and ensure you benefit from consolidating your debts in this way.

Debt consolidation for insolvent businesses

We’ll also let you know if insolvency is a threat to your business, or if you’ve already entered insolvency. If either is the case, a different type of business debt consolidation may be required.

Cash flow can quickly start to suffer when you’re repaying multiple business debts at the same time, but consolidating your debts by restructuring them within a Company Voluntary Arrangement (CVA) may be a good option.

A Company Voluntary Arrangement also protects your business from creditor legal action as long as it’s in place. It’s a formal arrangement that’s legally binding on all parties, and a form of debt consolidation that’s only available for insolvent companies.

Real Business Rescue has contacts with alternative lenders around the country, and can help you identify the right consolidation loan for your business if appropriate. Please get in touch with our expert team to find out more. We operate an extensive network of offices throughout the UK, and can offer you a free, same-day consultation.

Jonathan Munnery

Partner

0800 644 6080
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