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Updated: Apr 7, 2020
Debt is almost unavoidable as a business owner — and for good reason. Taking on debt can give you the financial flexibility to invest in business development resources, say yes to growth projects, buy new equipment, or hire additional employees.
However, if you’re not smart about budgeting, you risk missing payments, racking up more debt in interest fees, and stalling your business growth.
Fortunately, you have options. If you’re overwhelmed with your business debt, there are steps you can take to reduce your debt or alleviate some of the pressure around it. Here are two of the most common options for reorganizing your debt.
Many business owners looking to fix their debt consider refinancing or consolidating. Both are good options, but they have different purposes and benefits.
Refinancing is when you replace one or more existing loans with a new loan that has a different interest rate, principal amount, and payment timeline. Most business owners refinance their debt to try to score a lower interest rate. You have a better chance of getting a lower interest rate on a new loan if you’ve boosted your business credit score or business profits in the last year.
Refinancing might be right for your business if:
Consolidating debt, on the other hand, is when you combine multiple loans into one single loan to streamline your payments. Combining your loans doesn’t necessarily give you a more affordable rate; the primary reason business owners consolidate debt is to make their monthly payments more manageable and less time-consuming.
Consolidating might be right for your business if:
If you’re considering debt consolidation or refinancing, you have a few options for where to get a new loan. Keep reading to find out what makes the most sense for you.
You have a better chance of getting approved for a bank loan if you’ve received financing from the same institution in the past. Plus, banks offer lower interest rates than many other types of loans, ranging between 2% to 5%.
However, it can be more difficult to qualify for a traditional bank loan, particularly if your business credit score is suffering from multiple forms of credit.
It would be best if you also considered the timing since applying for a bank loan can be a lengthy process. If you’re at risk of missing a payment or feel too overwhelmed with debt to juggle your regular workload, then you may not be able to wait many months to receive a response from the bank.
The SBA offers a few options for refinancing, including the popular 7(a) loan, which business owners can also apply toward working capital, equipment, or big purchases. If you’re approved, you can borrow up to $5 million with loan terms of up to 10 years. The average interest rate for a loan backed by the SBA is between 7% and 10%.
However, it can be hard to qualify for SBA loans. The SBA typically looks for business owners who have business credit scores of 680 or higher, no bankruptcies in the past three years, a history of steady or increasing revenue, and at least a few years of operating experience. You may also have to put down a 10% payment for refinancing loans.
Applying for a refinancing or consolidation loan from an alternative lender tends to be faster and more affordable than going through traditional lending institutions, especially for business owners struggling with debt management. Many alternative lenders use a combination of human expertise and advanced underwriting software to speed up the approval process.
Plus, it’s generally easier to apply and qualify for loans from alternative lenders. You don’t need perfect business credit, nor do you need to gather piles of paperwork to complete an application. At Funding Circle, for example, you can apply online in just a few minutes and hear back in a day.
There are countless options for reorganizing your debt, but not all of them are as affordable or efficient. At Funding Circle, our goal is to make the lending process as easy as possible for you so you can focus on what you do best. Here’s what you can expect when you work with us.
Depending on the lender you refinance with, your new interest rate could be only slightly more affordable than your previous one. What’s more, if you opt for debt consolidation instead, you may not get a cheaper interest rate.
However, at Funding Circle, our rates are competitive with traditional lenders. We offer fixed rates starting at just 4.99%, with an average savings of 40% when compared to other online lenders.
When you’re overwhelmed with managing multiple forms of debt, having a streamlined way of paying is crucial. That’s why we offer once-monthly payments and predictable payment schedules, so you can budget and prepare easily.
Plus, you have an opportunity to build business credit. When payments are fixed, you’re more likely to pay on time. A history of timely payments can boost your business credit score, which can then increase your odds of receiving even better interest rates and financing opportunities in the future. It’s a win-win-win.
When you’re overwhelmed with debt, it’s helpful to align with people who understand your business’s needs and goals. At Funding Circle, you can count on an experienced team of people.
After you apply for a loan, one of our loan specialists will call you to walk you through the process and answer any questions you might have. Our mission is simple: to help clear your path so you can focus on building a thriving operation.
Amidst debt chaos, you need options that simplify everything. At Funding Circle, we pride ourselves on a straightforward fee structure and transparent pricing system. Here’s how it works: We charge a simple one-time origination fee for each loan ranging from 3.49% to 7.99%. From there, you pay your fixed interest rate.
Rest assured: We have no hidden fees or prepayment penalties. If you decide to pay off your loan early, you’ll only have to pay interest on the time you borrow, which means you can put the money you save toward a crisis fund or growth project to stimulate your revenue.
When you’re juggling too much debt, you don’t have time to embark on a tedious loan application process and wait months for approval. Plus, part of the appeal of refinancing or consolidating your debt is cutting down your to-do list and saving yourself time.
At Funding Circle, we understand the need for efficiency. That’s why we’ve designed our system so you can apply for a loan in less time than it takes to make a latte. All you need are a few key documents. And there’s no additional wait time — you can receive a response in as little as 24 hours and get funds in your account in just five business days.
Small business owners designed our loans for small business owners. We know firsthand how overwhelming it is to manage more debt than you can handle, so we’re here to help. If you think refinancing or consolidation could be right for you, learn more about your options or see how we compare.
Paige Smith is a Content Marketing Writer and Senior Contributing Writer at Funding Circle. She has a bachelor's degree in English Literature from Cal Poly San Luis Obispo, and specializes in writing about the intersection of business, finance, and tech. Paige has written for a number of B2B industry leaders, including fintech companies, small business lenders, and business credit resource sites.