Managing business debt, what are your options?

posted by 2 years ago in Features

Risk is a natural part of running a business, unfortunately in many cases this can lead to debt. It is often impossible to plan for a downturn in business, a recession or even a pandemic, sometimes debt is inevitable. For many businesses, borrowing cash can help boost income or fund an expansion, with debt often being a natural part of running a business. However, if your business debt levels have risen and you are unable to meet repayments, there are steps you can take to improve the manageability of this debt.

Company structure

Before you tackle your business debt, it is important to understand what the structure of your company means in relation to your debt. If you operate as a freelance or sole trader, there is no distinction between your personal and business finances. This means that if your business is struggling financially, your creditors could pursue you personally for the debt payments.

If you operate a limited company, you have a limited liability for repaying the businesses debts. This means only assets owned by the company are at risk, if the business is unable to repay creditors. However, if you have provided a personal guarantee to obtain credit, your personal assets may still be at risk. If you are not ready for your business to face insolvency, it is important to find a way to manage the debts accrued.

Reduce costs and increase income

The easiest way to unlock cash in the business to cover debt payments is to reduce costs. This could be through selling surplus stock, comparing utilities to find cheaper deals, or even moving to cheaper premises.

It is also important that you increase cash flow by increasing the income into the business. Depending on the type of business you operate, this can be achieved in a variety of ways. For example, have you offered customers long invoice payment terms, and can these be reduced? Are there customers who have outstanding invoices which could be contacted? Can you run a promotion or discounts to increase sales?

Make arrangements with creditors

If your business debts have risen and you are beginning to struggle, the sooner you contact your creditors, the sooner a manageable plan can be arranged. Managing debt is easier if it is tackled early, with many lenders willing to offer flexible repayment options. Initially your business should focus on its priority debts, which are the debts which could severely impact your businesses ability to trade. For example, your commercial mortgage or rent, business rates, utilities and tax liabilities. However, if you are finding it difficult to handle creditors, there are professional, reputable firms which offer debt management services to businesses.

Consolidate business debt

It may be possible to consolidate your existing debts into a single, manageable monthly payment amount. This business debt consolidation is also known as refinancing and simply means exchanging multiple expensive debts for a single more affordable debt. If your business is struggling to maintain high debt payments each month, a business debt consolidation loan could reduce these payments in exchange for a longer loan term. However, the extra breathing space obtained from refinancing may result in your business paying more in interest due to the increased loan term.

Here at BusinessComparison, we aim to find businesses the best deals for a variety of financial products. Whether you are looking to reduce costs by switching utility or insurance providers or are looking to refinance business debt, we can help. As a broker we have partnered with leading providers and can help you quickly compare the options available to you. If you are finding it difficult to manage your debts and would like further advice, there are several organisations which can offer free and impartial advice. To discuss your situation, we recommend contacting organisations such as the Business Debtline or PayPlan.