Will Consolidating Business Debt Actually Save Money? A Commercial Property Example

Choose the question before choosing the calculation

An owner can want three different things from consolidation: a smaller monthly payment, lower financing costs or fewer repayment dates to manage. One proposal may deliver only one of those benefits. Start by naming the priority. If the immediate objective is surviving a seasonal cash dip, quantify the relief needed and recognize any extra cost being accepted in exchange.

BDC’s cost-reduction guidance explains that interest rate is only one factor when choosing business financing. Use that as a reason to request the full schedule and charges, rather than to select a loan from its headline rate. Compare actual amounts and dates, keeping the property and guarantee obligations visible alongside the numbers. ^[1]

Use the same principal and comparison date

Compare the same debts and net proceeds. If one quote includes extra working capital, separate that advance before judging the cost. For a simple nominal comparison without new advances, financing cost over a chosen period equals scheduled payments plus separately paid fees plus ending principal minus starting principal. Financed fees belong in the relevant balance and must not be added again as cash-paid fees.

This is a bookkeeping comparison, not an APR or present-value calculation. State whether charges to end existing facilities are included. If you intend to pay off at the comparison date, include the applicable exit costs too. Where loan maturities differ, show the balance due and renewal assumptions rather than treating a future refinance as guaranteed.

United States comparison: Bank of America lists appraisal, title and filing expenses among potential commercial-real-estate closing costs. Use actual local quotes; U.S. fee descriptions are not Canadian prices or a universal fee schedule. ^[3]

Worked example: relief and savings point in different directions

A fictional business compares two ways of carrying the same $150,000 debt for 24 months. The current repayment plan calls for $4,000 a month and leaves $75,000 principal after month 24, with no additional fees assumed. Total payments are $96,000; nominal financing cost is $96,000 + $75,000 - $150,000 = $21,000. These invented schedule figures are not lender offers or market rates.

A proposed property-secured replacement calls for $2,500 monthly payments, $4,000 of fees paid upfront and $110,000 principal remaining after month 24. Payments total $60,000; nominal financing cost is $60,000 + $4,000 + $110,000 - $150,000 = $24,000. Monthly payments fall by $1,500 and total cash outflow falls by $32,000 after fees, but financing cost rises by $3,000 and ending debt is $35,000 higher.

Turn the result into a decision

The example excludes other loan payments, taxes, discounting and settlement charges at month 24. Any mortgage retained alongside the replacement must be included in the full business forecast; its cost can cancel in a comparison only if it is identical under both options. Borrowers should request actual repayment and payout schedules rather than infer them from the illustration.

Finally, review term length, prepayment flexibility, financial conditions and guarantees. BDC identifies these as relevant financing considerations alongside price. ^[2] Decide whether the payment relief justifies the cost and security exposure, then document a plan to reduce principal and avoid rebuilding old balances. ALOS can help organize the terms so the owner can discuss the trade-off using comparable information.

Your practical worksheet

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Frequently asked questions

Can a lower monthly payment mean higher total cost?

Yes. Slower principal repayment, fees or a longer borrowing period can offset payment relief. Compare the actual schedules.

Does this calculation measure lifetime savings?

No. The example measures a specified 24-month period. Lifetime cost needs the full repayment path and explicit future assumptions.