Business debt consolidation loans explained

If you’ve taken out finance to grow your business, you may be paying off different loans with different interest rates and repayment deadlines. This can sometimes become difficult to keep track of while running a high-growth business.

This is where a business debt consolidation loan can be helpful – it allows you to transfer all your outstanding debt from multiple lenders to one lender. That way you can keep on top of what you owe simply, straightforwardly – and may even get better rates.


What is a debt consolidation loan?


A debt consolidation loan allows a business to combine all its existing debt from different lenders into one single business loan, from one provider. Usually, businesses apply to a lender for the sum of debt they owe to other financial providers, and on approval, use that sum of money to clear that debt. From that point, they can usually pay back one lender with one monthly payment.

Debt consolidation isn’t just for merging debt from different lending providers. If you have two outstanding loans with one lender and want to take out a third, you may be able to request one straightforward loan to pay off all outstanding debt, rather than having different loans with different interest rates and monthly repayments.

What’s the difference between debt consolidation and debt refinancing?

Debt consolidation and debt refinancing loans are often used interchangeably, but in fact, there are a few important differences between them.

One key difference is that debt refinancing doesn’t typically involve grouping outstanding business debt together into one loan for ease. Instead, debt refinancing is predominately about moving debt from one provider to another to secure better interest rates, terms or repayment options.

Businesses may refinance their corporate debt to:

  • Receive better interest rates which may reduce their monthly repayments
  • Change the term of their loan – for example, opt for a longer-term to free up cash in the short term
  • Change the loan type – like switching from a floating rate to a fixed-rate loan

Although refinancing debt can be a way to save your business money, with more competitive interest rates, it’s important to know that it can incur fees too. Some loans come with their own provisions such as early repayment or closing fees.

Fast finance to accelerate your growth

If you’re ready to take your business to the next level of growth, find out how OakNorth can help you get there with business loans starting from £250,000 up to tens of millions.

What are the advantages of consolidating your business debt?

There are numerous benefits to taking out a debt consolidation loan – from saving money to saving time and making things more straightforward. We’ve listed some of the main reasons business owners consider debt consolidation loans:


Simplify your repayments

Rather than juggling different repayments with different interest rates and terms, you can merge all your debt into one single monthly repayment that’s easier to manage and keep track of.


Improve your cash flow

By controlling the number of repayments, you make each month – including interest, you could improve your business’ cash flow – making it easier to manage outgoings in line with your trading cycle. Even if you don’t get a lower interest rate on your new loan, changing your loan to a longer-term could decrease your monthly payments.


Reduce the risk of missed payments

Being a business owner is tricky enough, without having to keep on top of different debt repayments. If you’re paying off three or more business loans – it’s easy to miss a payment, – and unfortunately, that could mean penalty fees. By combining loans you’ll only have one repayment to keep on top of.


Save time

Loans aren’t the easiest things to navigate, they involve multiple people across multiple teams at multiple stages. Having one source of debt could solve headaches for your finance team, save time for your legal advisors, and help you sleep better at night, knowing everything is in one place.


Borrow more

When applying for a loan for debt consolidation you may be able to access additional capital for new growth opportunities.

What are the disadvantages of business debt consolidation?  

You could pay more in interest

It’s not guaranteed that by moving your debt to another lender you’ll save money – in fact, you may end up paying more in interest over time.  


 You could pay early repayment fees  

Some lenders charge businesses for the early repayment of debt. Before paying off any existing loans with a debt consolidation loan you should thoroughly check your contract for any early repayment charges, and take these into consideration.  


You could have new loan terms

While you’ll be able to repay all of your existing debt, you will be taking on new debt with new terms. In some circumstances, these terms could create an extended repayment period. While this isn’t a disadvantage for most people, it is something to be mindful of when considering business debt consolidation. 

Different debt consolidation loans for businesses

If you’re looking to combine your outstanding business debt, you can choose from two main types of business consolidation loans: secured and unsecured. These are the broad categories that indicate the risk level of a loan based on whether it’s secured against any tangible assets.

Secured loans: A loan which is secured against a tangible asset, or assets as security. If you cannot pay back your loan, the lender can claim these assets to recover the money they’re owed.

Unsecured loans: An unsecured loan doesn’t require the borrower to put forward any hard assets as security. Because of this, unsecured loans can be riskier. Lenders will often use a business’ cash flow and credit history to assess the risk of an unsecured loan.

There are different types of secured and unsecured loans that are tailored specifically for different sectors and purposes.

For example, business loans tailored for property developers looking to purchase land to build a property, and then convert it into a restaurant. Or, private investors that need fast access to finance to build their portfolio. Find out more about the different types of business loans available in the UK, and those that we at OakNorth offer in our in-depth guide to business loans.

Business financing for fast-growth businesses

We’re backing the best businesses up and down the UK with flexible financing. See our specialist business loans to find out how we can support you.

Is debt consolidation right for your business?

Debt consolidation isn’t for everyone – although it can make your monthly repayments easier, it may not make them more affordable. In fact, in some cases, the interest rate of your new loan may be higher, meaning your monthly outgoings increase.

Additionally, repaying or closing your other loans early could incur fees, so it’s important to understand your terms before making the decision to consolidate your debt into one business loan.

If you decide that you want the ease of one longer-term loan rather than multiple loans with different terms then you can opt for a business loan with a term of four years compared to two, for example. This increased loan term will reduce your monthly payments helping you free up some cash flow – but you may end up paying more in interest across the term.

How does a debt consolidation loan work at OakNorth?

If you’re looking to combine your outstanding debt into one simple straightforward monthly repayment, find out how we can help. We provide entrepreneurs with the right expertise and funding to scale successfully at pace.

So, if you need to improve cash flow to buy extra stock, or extra funds to make investments in your business, consolidating your debt into a longer loan term with OakNorth could provide you with the financial flexibility you need to grow.

Instead of offering standardised loans for different sectors, we take the time to understand your business, pair you with an expert that gets to the heart of your ambitions, and tailor a loan to help you get there.

This means no blanket decisions that don’t consider the bigger picture and no off-the-shelf products. Just fast, straightforward debt finance from £250,000 up to tens of millions.

Find out more about our range of business loans, or fill out our online form to speak to an expert.