Debt consolidation: consolidating business debt as an SME

The cost of borrowing for SMEs rose last year, with an increase from Q1 2024 to Q2 2024, rising from 7.51% to 7.65%. But, the news is not as bleak as it sounds. As of this year, the Bank of England is reducing the core bank rate down to 4.5%. 

Consolidating debt can help you tap into the best interest rates of the moment by getting one loan to centralise all debt. Here’s how that works for your business. 

What is debt consolidation? 

Debt consolidation is where you combine a number of different debts into a new, single loan. Essentially, you take out a single, large lump sum of funding, which is used to pay off all other outstanding debts (any asset finance, bridging loans, short term business loans, and more), and you then repay the new large loan in instalments over a set period of time. These installments are usually monthly. 

The benefits of consolidating debt

Many businesses choose to consolidate their debt into a single loan. There are several reasons for this, we’ve listed some of these below.  

Reduced interest rate 

Depending on when you took out the various loans you’d like to consolidate, interest rates may have been at a seasonal high. Also, sometimes, larger loans can come with lower interest rates. For instance, a commercial mortgage, which is generally much larger in size than something like a short term business loan, could come with a lower interest rate. 

Lower monthly cost 

If you’re struggling with high monthly payments, a centralised loan could reduce this. With various debts, costs can stack up, particularly if they were each taken out at different times with different purposes – perhaps some were emergency loans taken out during hard times and there wasn’t enough time to consider the impact the payment could have had on your monthly budget. 

A consolidated loan gives you the space to plan out a budget and truly consider what you’re able to repay on a monthly basis. You could then take this number to a lender, along with the total amount you owe, and see if they can potentially provide a loan that could match. It’s likely this could mean paying off the loan for a longer period of time, but this consistency could help you budget more effectively and get control back of your finances. 

Less admin  

A single loan is often easier to manage admin wise than various forms of funding. This could help relieve some of the administrative burden of running your business. 

Consistency 

As mentioned, if you’re approved for a loan of this type, you’d likely be making a single, consistent payment each month. This can help you budget for future costs and understand how much revenue you need to stay afloat. This type of consistency can help you stay mentally secure and potentially lead to greater mental space for growth. 

The types of loans most suited to debt consolidation 

There are several types of loans that are most suited to debt consolidation for SMEs. These include some of the following.  

Secured business loan 

A secured business loan is where you take out a lump sum of money, which you pay back over a set period of time in regular, usually monthly installments. 

The feature here is that the loan is secured against an asset. This could be the business itself, a property, or a particularly expensive piece of equipment, which is used as collateral for the loan. This type of loan could help you gain access to a better interest rate as the lender may feel a little more confident in gaining their investment back if there is security involved. 

Unsecured business loan 

An unsecured business loan can be similar to a secured loan in some ways, but differs in the key component that there is no asset used as collateral. The consequence here is often that interest rates are higher and the loan is harder to gain access to. 

The amount you can borrow is often lower as well. It’s important to note that just because there is no collateral, doesn't mean your assets are completely protected in the case of a default. 

Commercial mortgage 

If the loans you’re trying to consolidate are things like property development finance, a bridging loan, or auction finance, a commercial mortgage or semi-residential mortgage could be used to consolidate this debt. The property will be used as collateral, and the repayment is usually spread across a period not surpassing 35 years. 

Consolidate debts with Funding Options by Tide

We may be able to help you secure a business loan that can be used to consolidate your debts. We’re Funding Options by Tide, one of the leading business finance brokers in the UK. 

We’re partnered with over 120 lenders, which means we can generally find some of the best deals available, simply because our team of experts are able to rapidly compare so many different options. If you’d like to find out if you’re eligible for up to £20 million in business finance, simply click the link below and submit your information. 

Find a business loan.

Please note that the information above is not intended to be financial advice. You should seek independent financial advice before making any decisions about your financial future.

It’s important to remember that all loans and credit agreements come with risks. These risks include non-payment and late-payment of the agreed repayment plan, which could affect your business credit score and impact your ability to find future funding. Always read the terms and conditions of every loan or credit agreement before you proceed. Contact us for support if you ever face difficulties making your repayments.

Funding Options, now part of Tide, helps UK firms access business finance, working directly with businesses and their trusted advisors. Funding Options are a credit broker and do not provide loans directly. All finance and quotes are subject to status and income. Applicants must be aged 18 and over and terms and conditions apply. Guarantees and Indemnities may be required. Funding Options can introduce applicants to a number of providers based on the applicants' circumstances and creditworthiness. Funding Options will receive a commission or finder’s fee for effecting such finance introductions.