Business Debt Help

How business debt problems develop

Most businesses borrow for a purpose: a vehicle, a refit, stock ahead of a busy period, or cover for the gap between paying staff and being paid by customers. A single facility that was affordable when taken out can become a strain when a large customer pays late, a contract ends, or interest rates on a variable facility rise.

The trouble usually starts when a short-term fix becomes a habit. The overdraft is used every month instead of occasionally. A merchant cash advance is taken to cover a quarter's VAT. A second loan is used to keep up with the first. Each step looks sensible on its own, but together they leave the business servicing several facilities on different dates at different costs, with little cash left for anything else.

Business debt help, in the sense we use it here, means clear information about what is happening, what the options are and who can help. It is not the same as debt advice.

Information, regulated advice and free impartial services

Three different things are often described as "business debt advice", and it matters which one you are getting.

• Information explains how a situation works and what options exist in general terms. That is what this website provides. We can explain, and where appropriate we may introduce you to third-party finance providers or specialist advisers, but we do not assess your position or tell you what to do.
• Regulated debt advice is a personal recommendation about how to deal with debts. For sole traders and small partnerships this is a regulated activity, and the firm giving it must hold the right permission from the Financial Conduct Authority. Insolvency advice for companies or individuals can only lead to a formal procedure through a licensed insolvency practitioner.
• Free, impartial services such as Business Debtline give advice to the self-employed and small businesses in England, Wales and Scotland at no cost. Their advisers can look at the whole picture, including personal debts, and explain every route without any product to sell.

When finance may help and when it will not

The most useful question to ask is whether the business has a timing problem or a structural one.

A timing problem exists when the business is profitable over a year but short of cash on particular days. Customers pay on 60-day terms while wages go out weekly. Stock is bought in September for sales in December. The quarterly VAT bill lands in the same week as the rent. In these cases, cash flow finance, invoice finance or consolidating several expensive facilities into one can bring repayments into line with income. New finance has a fair chance of working because the underlying business generates enough cash to repay it.

A structural problem exists when the business does not make enough money to cover its costs and its debt payments, however they are arranged. Sales have fallen, margins have shrunk, or the total borrowing is simply too large for the turnover. Here, new finance tends to delay the reckoning and increase the final bill. Directors may also have duties to creditors once they know or ought to know that insolvency cannot be avoided. The right next step is usually a conversation with Business Debtline or a licensed insolvency practitioner about restructuring, a Time to Pay arrangement, or a formal procedure.

Many businesses sit somewhere between the two. The pages above, and our guide to what happens when a business cannot repay its loans, are designed to help you work out which side of the line you are on before you speak to anyone.