Key points
- Repayments usually become unaffordable because the term is short, the rate has risen, or revenue has fallen since the loan was taken.
- The levers are a longer term, a lower rate through refinancing, consolidation, an interest-only period and a payment holiday.
- Every lever that lowers the monthly payment by stretching the term increases the total repaid. Ask for both figures.
- The existing lender is usually the first call. Changing an agreement is often quicker and cheaper than replacing it.
- Taking a merchant cash advance to cover a loan repayment almost always makes the position worse.
Why repayments become unaffordable
A business loan repayment is set by three things: the amount borrowed, the interest rate and the term. The business's ability to pay is set by something else entirely, which is the cash left after wages, suppliers, rent and tax. When those two move apart, the repayment becomes "high" even if nothing on the agreement has changed.
- Short terms. Many online business loans run for six to eighteen months. Short terms keep total interest low, but the monthly or weekly figure is large relative to the balance. A £30,000 loan over 12 months costs well over £2,500 a month before interest.
- Rate rises on variable facilities. Overdrafts, revolving credit and some term loans track a base rate. A rise of a few percentage points on a large balance can add hundreds of pounds a month without any new borrowing.
- Lost revenue. A major customer leaves, a contract ends or a season disappoints. The repayment that was 10% of monthly takings is suddenly 25%.
- Stacked facilities. Each loan was affordable alone. Together they are not. Our page on managing multiple business loans deals with that situation.
The levers that can reduce a monthly repayment
1. Extending the term
Spreading the same balance over more months lowers each payment. Some lenders will agree an extension on the existing agreement; otherwise it is achieved through refinancing. This is the most common lever and the one with the clearest cost, covered below.
2. Reducing the rate through refinancing
Business loan refinancing replaces the existing loan with a new one at a lower rate, where the business qualifies. If the term stays the same, the monthly payment and the total cost both fall. This is the only lever that can reduce both at once, and it depends on the business presenting a stronger case now than when it first borrowed. Arrangement fees and any early repayment charge on the old loan must be included.
3. Consolidation
Where several facilities are involved, consolidating them into one loan can lower the combined monthly outgoing, especially where daily or weekly collections are replaced by one monthly payment. The reduction usually comes from a longer term as well as a lower rate, so the total-cost question applies.
4. An interest-only period
Some lenders will accept interest-only payments for a few months, after which capital repayments resume at a slightly higher level or the term is extended. It can be useful for a defined, temporary problem such as a delayed contract payment. It does not reduce the balance at all during the period.
5. A payment holiday
A full break from payments for a short period. Interest continues to accrue and is added to the balance, so the loan costs more overall and later payments rise. Lenders generally offer this only where the difficulty is clearly short-term and the business has a credible plan.
The trade-off: lower payment, higher total
Any lever that works by stretching the term means interest is charged for longer. The monthly figure goes down; the total goes up. The illustration below shows the effect for a single loan at an unchanged rate. The figures are illustrative only and not a quote.
| Illustrative £50,000 loan | Term | Approximate monthly payment | Approximate total repaid |
|---|---|---|---|
| Current agreement | 24 months | £2,300 | £55,200 |
| Extended term | 48 months | £1,250 | £60,000 |
| Extended further | 60 months | £1,050 | £63,000 |
Doubling the term roughly halves the payment and adds around £4,800 to the cost in this example. Whether that is worth it depends on what the extra £1,050 a month does for the business. If it keeps a profitable business trading and paying its suppliers on time, it may be a sensible price. If it simply postpones a problem the business cannot trade out of, it is money lost. Our guide on how to reduce business loan repayments works through more examples, and the debt comparison tool lets you test your own figures.
Speak to the existing lender first
Before applying anywhere else, ask the current lender what it can do. Many will discuss a term extension, a short interest-only period or a revised schedule, particularly if the business has paid on time so far and comes to them before a payment is missed. Changing an existing agreement avoids arrangement fees, a fresh credit search and a new personal guarantee. Lenders regulated under the Consumer Credit Act, which covers agreements of £25,000 or less with sole traders and small partnerships, are expected to treat customers in difficulty with forbearance. Larger and limited-company agreements are not regulated in the same way, but most lenders would still rather adjust a loan than enforce it.
Go into the conversation with a cash-flow forecast and a specific request: "Can we extend the term to 48 months?" is far more likely to get a useful answer than "Can you help?"
What not to do
Do not take a merchant cash advance to pay a loan
A merchant cash advance repays from a percentage of daily card takings at a factor rate that is not an APR. Using one to meet a monthly loan repayment swaps one predictable payment for a more expensive, daily one, and leaves both running. It is one of the fastest routes from a manageable repayment problem to a serious debt problem. See our merchant cash advance debt page.
Other things to avoid: using the business credit card for the repayment, borrowing personally to fund the company without understanding the exposure, and signing a new agreement before the settlement figure and early repayment charge on the old one are known.
When to get professional or free help
If no realistic term or rate would make the repayments affordable from trading, the problem is the amount of debt rather than its shape. Business Debtline gives free, impartial advice to small businesses and the self-employed. Where the business cannot pay its debts as they fall due, a licensed insolvency practitioner can explain the formal options. Finance Business Debt provides information only and does not give debt advice.
Frequently asked questions
Can I reduce my business loan repayments without refinancing?
Possibly. Ask the existing lender about a term extension, an interest-only period or a revised schedule. Not every lender will agree, but the conversation costs nothing and avoids the fees of a new facility.
Does a lower monthly payment always mean paying more overall?
No. If the rate falls and the term stays the same, both figures fall. If the payment falls because the term is longer, the total rises. Always ask for the total amount repayable alongside the monthly figure.
Will asking for help affect my credit file?
Asking does not. A formal arrangement such as a payment holiday may be recorded, and a new application involves a credit search. Missing payments without any agreement is the most damaging outcome.
Can I refinance a Bounce Back Loan to lower the repayments?
In principle, but the scheme rate is usually lower than any replacement, and the scheme itself offered term extensions and payment holidays. Check what the existing lender can do first.
What if I have already missed a payment?
Contact the lender immediately and read our business loan arrears page. New borrowing becomes harder and less suitable once arrears exist.