Benefits of debt consolidation
Key benefits of consolidating business borrowing include:
- One repayment in place of several
- Monthly commitments can often be reduced
- Simpler administration and fewer lender relationships
- An opportunity to move to a structure that fits how the business trades today
Borrowing tends to build up gradually. A loan taken for one purpose, a merchant cash advance for another, an asset agreement or two, and before long a meaningful share of monthly turnover is committed to repayments on different dates at different costs.
Consolidation replaces some or all of those facilities with a single arrangement, which can reduce the total monthly outgoing and make cashflow far easier to manage.
What is business debt consolidation?
Business debt consolidation is the refinancing of existing borrowing, such as loans, merchant cash advances, revolving credit balances and other facilities, into one new facility with a single repayment.
Consolidation can be arranged on an unsecured basis or secured against business or personal assets. Secured options, including second charge facilities, can support larger amounts, longer terms and more competitive rates.
It is worth being aware that spreading repayments over a longer term can increase the total cost of borrowing over the life of the facility, even where the monthly payment falls. We will always set out the full cost of any option alongside the monthly figure so the trade-off is clear.
Not every facility is worth consolidating. Where existing borrowing carries early settlement charges or sits at a particularly competitive rate, it can be better left in place, with consolidation applied only where it helps.
How does debt consolidation work?
A consolidation facility is typically assessed as follows:
- Review: The starting point is a full picture of existing borrowing, including balances, settlement figures and any early repayment charges.
- Loan amount: The new facility is sized to repay the borrowing being consolidated, and can sometimes include additional working capital where affordability supports it.
- Eligibility: Lenders will consider trading history, affordability and, for secured options, the assets available as security.
- Repayment: A single monthly payment across an agreed term, in place of the facilities that have been repaid.
