When Combining Business Debts Makes Sense—And When It Doesn’t
Managing multiple loans or credit facilities can be a juggling act for many Australian small to medium-sized business owners. From equipment loans to business credit cards, the burden of keeping track of repayments and interest rates can quickly affect cash flow and productivity.
Debt consolidation loans offer one possible solution—by combining multiple debts into a single, streamlined facility. But while consolidation can be a smart financial strategy, it’s not always the right move for every business.
In this article, we explore how debt consolidation works, when it makes sense for your business, and when to proceed with caution.
What is a Debt Consolidation Loan?
A debt consolidation loan allows you to combine two or more existing debts—such as equipment loans, business credit cards, lines of credit, or other unsecured loans—into one new loan. This new facility typically offers a single repayment schedule, one interest rate, and a longer loan term.
The goal? Simplify repayments, reduce interest costs, and improve cash flow management.
How Does Debt Consolidation Work?
Let’s say your business currently has:
- A business credit card with $15,000 owing at 20% interest
- An equipment loan with $25,000 remaining at 9%
- An unsecured loan of $10,000 at 15%
A debt consolidation loan could roll all three balances into one new loan—say, $50,000 at 10% over 3–5 years. You’d make one regular repayment instead of three, possibly at a lower total interest cost.
Benefits of Debt Consolidation for Business
When used strategically, consolidating debts can help businesses:
✅ Simplify Finances
- One loan = one regular repayment and fewer admin headaches
- Easier cash flow forecasting and financial planning
✅ Lower Overall Interest
- Replace high-interest facilities (like credit cards or short-term loans) with one loan at a lower rate
✅ Improve Cash Flow
- Potential to reduce your monthly repayment amount by extending the loan term
- Frees up working capital for operations or growth
✅ Strengthen Credit Profile
- Making consistent repayments on a single facility may support a stronger credit score over time
When Does Debt Consolidation Make Sense?
Consolidation could be a smart move if your business:
- Has multiple debts with high interest rates
- Struggles to manage several repayment schedules
- Needs to reduce monthly repayments for better cash flow
- Is seeking a cleaner financial structure ahead of expansion or investment
- Has a stable cash flow to support consistent repayment of a new loan
When to Be Cautious
While consolidation offers benefits, it’s not suitable for every situation. Consider the following risks:
⚠️ Extended Loan Terms = More Interest Over Time
Even with a lower rate, stretching your loan over a longer period could result in higher total interest paid.
⚠️ Upfront Fees
Some lenders charge establishment, break, or early repayment fees—especially on fixed-term or secured business loans.
⚠️ Risk of Securing Unsecured Debt
Turning unsecured debts (like credit cards) into a secured loan may put assets—like equipment or property—at risk if repayments aren’t met.
⚠️ Doesn’t Solve Underlying Spending Issues
If cash flow issues are due to poor budgeting or over-borrowing, consolidation alone won’t solve the problem.
Tips Before You Consolidate Business Debts
If you’re considering a consolidation loan, take these steps:
🧾 Review Your Current Debts
List all your debts, interest rates, repayment terms, and any exit fees.
💬 Speak to a Finance Broker
A professional business finance broker can help you compare options and assess the total cost over time—not just the monthly saving.
📅 Align with Cash Flow
Structure repayments to suit your cash flow cycle—weekly, fortnightly, or monthly.
📉 Consider the Long-Term
Balance lower repayments with the total interest cost to ensure you’re saving overall.
Why Work with Capital Plus Finance?
At Capital Plus Finance, we understand that small business loans in Australia come in all shapes and sizes. Our team specialises in business finance solutions tailored to your unique situation—including smart debt consolidation strategies.
With access to over 40 lenders, we can:
- Compare multiple consolidation loan options
- Negotiate competitive interest rates and repayment terms
- Help structure repayments to suit your cash flow
- Offer expert, personalised guidance at every step
Thinking About Debt Consolidation?
Consolidating business debts can be a powerful way to take back control of your finances—if it’s done right. Whether you’re managing cash flow challenges, preparing for expansion, or simply want to simplify your financial obligations, a debt consolidation loan could be the reset your business needs.
👉 Talk to the team at Capital Plus Finance today to find out if consolidation is the right fit for your business goals.
