By Zilla Efrat 

Is your business’ debt rising in the current high-interest rate environment? If so, here are two strategies to help you begin the new fiscal year in better shape. 

Debt consolidation

As your business evolved over the years, you may have funded its development via various sources of debt, everything from credit cards and lines of credit to different loans. But each method of financing comes with different interest rates, fees and repayment terms. Managing them all may sometimes feel like a tiresome juggling act. 

Debt consolidation involves rolling all these different debts into a single loan from one provider at the lowest interest rate you can get. The new loan is then used to pay off the older loans over the same or a longer or shorter period. 

By consolidating your loans, you could reduce the cash flow repayments you must make each month. Making smaller payments over a longer period may reduce your monthly interest bill and improve your cash flow. 

You might also benefit from changing from a principal/interest product to an interest-only product or using a leasing product. 

Dealing with one lender instead of many should save you time and administration costs. Plus, you may be able to borrow more than the value of the combined loans and use that cash to fund other business needs. 

However, the Australian Securities and Investments Commission’s (ASIC) Moneysmart website warns that debt consolidation may cost you more if the interest rate or fees (or both) are higher than what you paid before. You could also get deeper into debt if you obtain more credit, as it may tempt you to spend more. 


Unlike debt consolidation, you only need one loan to refinance. Refinancing involves replacing your existing loan with another loan with more favourable terms and/or conditions. This is usually done by taking a loan from another financial institution or by switching to a different debt product.  

Refinancing often makes sense for businesses that started with a simple debt structure such as an overdraft facility and expanded on this over the years even though this arrangement is no longer ideal or cost-effective for their current and future needs. 

Other types of finance – for example, asset, trade or invoice finance –may be far more suited to the business activities the business wants to fund. 

That said, refinancing should only be undertaken after a thorough cost/benefit analysis of all the options available. 

Factors to consider

If you are planning to refinance or consolidate your debt with another financial institution, it may pay to talk to your existing financial institution to assess whether it can offer you similar services and facilities. 

Make sure you understand all the fees and penalties of exiting your existing debt facilities. These could outweigh the potential savings of switching. 

Ensure you are aware of all the costs of switching to a new lender or product. These could include application, documentation and valuation costs. 

Also, consider whether it’s worth losing your long-term relationship with your current financial institution if it understands your financing arrangements and business history. Will the new provider develop a similar relationship with you? 

If your new arrangement provides additional finance for business growth, ensure that your business can service the higher debt commitment and that the investment of the new finance is targeted at achieving a higher return for the business. 

The Moneysmart website says you should never trust a lender that is not licensed, asks you to sign blank documents or refuses to discuss repayments. 

Always check your business and personal credit scores before you apply for a new financing arrangement. You don’t want to get caught out by an error on your credit report that you didn’t know about. 

Consolidating or refinancing business debt can be complicated and may take longer than expected, especially if you go from lender to lender. A broker can quickly provide many different funding options to suit your needs.  

Don’t just set and forget. You should review your debt finance arrangements regularly to ensure your financing arrangements fit the changing needs of your business. 

Call us for customised financing options for your business.