Best Loans to Consolidate Business Debt With Different Repayment Schedules

Does borrowing cause cash flow headaches? It might if you have to make daily, weekly, and monthly payments to three different lenders. Instead, try consolidating all that debt into one term loan. You’ll have one payment per month. Replacing all those loans with one affordable, longer-term option is often the best fix. Start by checking out SBA-backed loans (they’re offered by banks, too) and then shop online and brick-and-mortar term loans to see what’s available.

Cash inflows from sales are seldom on a clockwork schedule, but your cash outflows are fixed for everything from rent and electricity to salaries and equipment. Varied payback schedules are easier to manage when you have lots of cash on hand. But smaller companies often benefit from simpler systems and want straightforward monthly payments for everything. Constantly paying down debt and guessing where you’ll find your next customer payment can put a damper on cash flow. A longer term with a set monthly payment makes it easier to keep money in your account until you’re due. If you’re only managing two loans or credit lines, you might be thinking that you can handle it, but one unexpected day of no sales can dry up your entire cash pile.

Many online lenders offer short term loans and credit lines that have to be repaid in full within twenty-four months. If you need longer than that to make borrowing worthwhile, try looking at a local bank or credit union.

Consolidate Debt Through an SBA Loan

For debt restructuring, consider SBA’s 7(a) program. If you can qualify, you may get a better interest rate than many alternatives offer. SBA 504 loans can refinance debt tied to fixed assets such as commercial real estate and large equipment purchases. They come with long terms and fixed rates of 10, 20 or 25 years. Don’t use an SBA 504 loan for short-term cash crunches; only use them to manage long-term debt.

Many lenders also offer unsecured term loans with repayment periods of two to five years (some are longer). With a secured term loan, the collateral may improve approval odds.

In most cases, you can’t refinance an active MCA with an SBA 7(a) loan. That means the MCA has to be converted into a regular term loan. Factoring agreements are off the table too. Talk to your lender about their policy. If you’re refinancing, your current debts need to be current. There can be no payment that’s more than 29 days late in the last 12 months. The new payment must generally be at least 10% lower.

When you shop around, Lendio is one marketplace that shows you offers from multiple lenders. Loans can be as large as $5 million with terms up to 25 years. Funding often comes in one to two business days. Fundible is one lender that’s more friendly to low credit scores. They can approve businesses with credit scores as low as 500. They’ll loan up to $10 million, with terms that go out as far as ten years. But fees are only disclosed after applying, so it’s hard to make apples-to-apples comparisons without jumping through hoops.

Chase offers up to $5 million and terms may run 25 years. Chase Business Banking customers may get rate discounts. The process takes longer (it may be two weeks or more before you see funding). Or try Lendistry, a community development lender that focuses on underserved owners. This CDFI has a minimum credit score of 620, and it offers term loans from one to five years for up to $350,000. iBusiness Funding specializes in SBA and USDA loans. Loans top out at $25 million, with terms up to 30 years.

In general, the longer the loan, the more you’ll pay in interest. However, for some businesses, having a lower, more affordable monthly payment can be more important than interest savings. Compare the monthly payment amounts between two loans with the same amount (but with a different term length). When comparing offers, don’t look only at your monthly payment. Think about the total cost, which includes your interest rate, fees, and prepayment penalties. Online loans offer faster funding, but it generally costs more. If you can wait a few weeks for an SBA loan, you may save in the end. For SBA 7(a) loans, the prepayment penalty only applies for loans with terms of 15 years or more, and only if you pay off at least 25% of your balance within the first three years. For the first year, the penalty is 5%.

Consolidating starts with having a loan that lets you borrow enough to cover your existing debts. If it’s too small to replace everything, it won’t reduce the number of payments you make. How much you can get varies by loan and lender. For starters, check the lender’s minimum requirements for time in business, revenue and credit score. Second, gather the supporting documents lenders typically want to see during the approval process, including your bank statements and tax returns. Finally, get quotes from three to five lenders. You can’t truly get the best rate without comparing. Once you get approval, double-check the loan agreement before signing. Once you get the funds, pay off each old debt, then make a single payment to your new lender.

But don’t take on new debt thinking it will fix cash flow problems caused by overspending or under-earning. That’s like bailing out your boat while it’s still taking on water. Failing to make payments on a new, secured loan can cost you your equipment or even your property.