Business Debt Consolidation as a Tool for Growth

April 20, 2023 Oak Street Funding

Debt Consolidation for Growth

If you are struggling with multiple debts that are hamstringing your growth opportunities, it may be time to consider a debt consolidation loan. Many businesses need a form of working capital to pursue the opportunities that present growth potential, such as buying a retiree's book of business, expanding the company's staff, or even investing in upgraded technology. It’s not unusual to see even healthy businesses use a substantial chunk of their monthly revenue to pay off all sorts of business debt.

In some cases, multiple debts adding up to enough debt service to hamstring them is the challenge with much of that debt coming with high interest rates. Business owners who are in that situation say things like, “When I finally pay that off, I’ll be able to …” They know debt is holding them back, but they may not understand the options they have to help.

How Business Debt Consolidation Works

It’s not a hopeless situation, but escaping it requires two steps. First, the owner must change their mindset to recognize the value and potential of working capital, so they focus on growing and protecting it. Second, they need to take control of the debt they already have. One solution that can be particularly effective is to use a business consolidation loan.

A business consolidation loan works by combining multiple debt obligations into a single loan. The goal is to simplify debt repayment and potentially reduce interest costs. This can be particularly helpful by improving your cash flow and simplifying your financial management.

Consolidation or Refinancing: What’s the difference?

Business debt consolidation and refinancing are two strategies that businesses can use to manage their debt obligations and improve their financial situation. However, there are key differences between the two.

Debt consolidation involves combining multiple debt obligations into a single loan, with the goal of simplifying debt repayment and potentially reducing interest costs. Refinancing, on the other hand, involves replacing an existing loan with a new loan that typically has better terms, such as a lower interest rate or a longer repayment term.

Here are some of the key differences between business debt consolidation and refinancing:

  • Purpose: Debt consolidation is focused on simplifying debt repayment and potentially reducing interest costs, while refinancing is focused on improving loan terms, such as reducing interest costs or extending the repayment term.
  • Types of debt: Debt consolidation is typically used to manage multiple high-interest debt obligations, such as credit card debt or personal loans, while refinancing is typically used for larger loans, such as mortgages or business loans.
  • Impact on credit score: Debt consolidation can have a mixed impact on a business's credit score, depending on factors such as the amount of debt consolidated, the interest rate on the consolidation loan, and the business's overall financial health. Refinancing, on the other hand, can have a positive impact on a business's credit score, as it demonstrates the business's ability to secure favorable loan terms.
  • Loan terms: Debt consolidation loans typically have shorter repayment terms and higher interest rates than refinancing loans. Refinancing loans can offer longer repayment terms and lower interest rates, depending on the business's creditworthiness and loan requirements.

How to get a business debt consolidation loan

  1. Initial conversation: A dedicated Loan Officer will meet with you to discuss your unique business needs and ensure all your questions are answered. If it seems we can help, you would then complete a loan application.
  2. Submit an application: You have the option of completing an online or paper application, and submit initial documentation to assess whether a term sheet – a non-binding letter of intent which summarizes the important financial and legal terms as well as the amount of the loan and its repayment – can be issued.
  3. Document submission: Following execution of a term sheet and deposit, all documentation required for a loan would be submitted through our secure
  4. Due diligence: All relevant documents and information is analyzed by Underwriting, and any outstanding questions would be addressed.
  5. Closing and funding: Final review and electronic signing of the loan documents and then funds are disbursed.

Pros and Cons of Consolidation

The goal of debt consolidation is to simplify debt repayment by combining multiple payments into a single payment with a lower interest rate. Here are some of the pros and cons of business debt consolidation:


Simplified debt repayment: With business debt consolidation, you make one monthly payment instead of multiple payments, which can make it easier to keep track of your debt repayment.

Lower interest rate: If you're able to secure a lower interest rate on your consolidation loan than you were paying on your existing loans, you can save money on interest over the life of the loan.

Improved cash flow: By reducing your monthly debt payments, debt consolidation can free up cash flow, which can be used to invest in other areas of your business.

Increased credit score: By paying off multiple loans with a consolidation loan, you can improve your credit score by reducing the amount of outstanding debt and increasing your credit utilization ratio.


Long-term debt: Business debt consolidation typically results in a longer repayment term, which means you'll be paying off your debt for a longer period of time.

Increased total cost: Even if you secure a lower interest rate, you may end up paying more in total interest over the life of the loan due to the longer repayment term.

Decreased flexibility: With business debt consolidation, you're locked into a single loan with a fixed interest rate, which can limit your ability to take advantage of future opportunities to refinance or pay off the debt early.

Impact on credit score: Applying for a business debt consolidation loan can temporarily lower your credit score, as multiple hard inquiries on your credit report can be seen as a sign of financial stress.

It is important to carefully consider the pros and cons of business debt consolidation before making a decision, and to work with a financial advisor or loan specialist to find the best option for your business.

When is the right time?

When to use a debt consolidation loan is a strategic decision you have to make as a business owner, but there are several things to consider to help you decide. One of the most important factors in deciding is if your business has difficulty making the monthly payments. This could be because the interest rate is very high or there are too many debts to keep track of for payments management. Consolidating debt into a single financial commitment could reduce your interest rate, improve your financial management, and assist in additional financing opportunities to help fuel growth initiatives.

Options for business debt consolidation

This approach requires a lender who understands the unique economics and revenue streams associated with your business. Traditional sources such as local banks are more accustomed to collateral-based lending, while specialty lenders such as Oak Street Funding can structure a business debt consolidation against the future cash flows from your book of business. That can free up cash flow, so you can get off the debt treadmill and focus on your long-term growth and security.

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Disclaimer: Please note, Oak Street Funding does not provide legal or tax advice. This blog is for informational purposes only. It is not a statement of fact or recommendation, does not constitute an offer for a loan, professional or legal or tax advice or legal opinion and should not be used as a substitute for obtaining valuation services or professional, legal or tax advice.

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