To reduce a business loan repayment, you can speak to the existing lender, extend the term, refinance to a lower rate, consolidate several loans into one, switch temporarily to interest-only or a payment holiday, or overpay the most expensive debt so the others become manageable. The first option costs nothing to try. The next four lower the monthly figure but, in most cases, increase the total repaid. The last reduces both, but only if the business has some surplus to direct at the debt.
In this guide
Option 1: Speak to the lender
Most lenders would rather adjust a loan than see it fall into arrears. If the business is up to date but struggling, a direct conversation is the cheapest first step. Ask what the lender can offer: a term extension, a short period of reduced payments, a change of payment date to suit when customers pay, or a move to interest-only for a few months.
Go into the conversation with a current cash-flow forecast and a clear explanation of what has changed. A lender is far more receptive to a business that has spotted the problem early than to one that calls after a missed payment. Any variation should be confirmed in writing, and it is worth asking whether the change will be recorded on the business's credit file.
Option 2: Extend the term
Spreading the same balance over more months lowers each payment. It is the most common way repayments are reduced and the one with the clearest trade-off: the longer the money is outstanding, the more interest is charged in total.
The term trade-off, illustratively
Take a £40,000 loan at an illustrative fixed rate of 10 per cent a year, repaid in equal monthly instalments.
- Over 24 months, the repayment is about £1,846 a month and the total repaid is roughly £44,300, of which about £4,300 is interest.
- Over 36 months, the repayment falls to about £1,291 a month and the total rises to roughly £46,500, with about £6,500 of interest.
- Over 60 months, the repayment is about £850 a month and the total is roughly £51,000, with about £11,000 of interest.
Moving from two years to five years cuts the monthly figure by almost £1,000 but costs around £6,700 more over the life of the loan. Whether that is a price worth paying depends on how much the monthly headroom is worth to the business. These figures are illustrative only, ignore fees, and are not a quote.
If the lender will extend the existing agreement, there is no new application and usually no arrangement fee. If not, extending the term means refinancing, which brings the costs covered in the next option.
Option 3: Refinance to a lower rate
Replacing a loan with a cheaper one is the only option that can lower the monthly figure without lengthening the term. It works best where the original loan was taken quickly, at a high rate, or where the business's credit position has improved since.
The saving has to be set against the costs of switching: an early repayment charge on the old loan, an arrangement fee on the new one and, for secured lending, valuation and legal costs. A rate saving of a point or two on a small balance can take years to recover those fees. Our guide to how business debt refinancing works walks through the process, and the business loan refinancing page covers eligibility and costs.
Option 4: Consolidate several loans
If the business has several facilities, combining them into one often reduces the total monthly outgoing, partly through a longer term and partly because high-cost short-term products are replaced with cheaper term borrowing. The result is one payment, one date and one end point.
The trade-offs are the same as extending the term, multiplied across every facility, plus the risk that newly cleared credit lines get used again. The business debt consolidation page covers it in full, and the risks of consolidating business debt is worth reading before you apply.
Option 5: Interest-only or a payment holiday
Some lenders will allow a period, typically one to six months, during which the business pays only the interest or nothing at all. It is a short-term measure for a short-term problem: a seasonal dip, a delayed contract, a large one-off cost.
Nothing is forgiven. Interest continues to accrue, and the deferred capital has to be caught up, either through higher payments afterwards or a longer term. A payment holiday may also be recorded on the business's credit file, which can affect future applications. It should be arranged with the lender in advance, not taken unilaterally by cancelling a direct debit.
Option 6: Overpay the most expensive debt first
This is the only option that reduces both the monthly outgoing and the total cost. Where the business has any surplus, directing it at the highest-rate facility clears that debt faster, saves the most interest and, once it is gone, removes a repayment from the monthly list.
Check the early repayment terms first. Some loans charge for overpayments, and merchant cash advances in particular are priced on a fixed total rather than a rate, so paying early may not reduce the amount owed. If there is no surplus at all, this option is not available, and the business should be looking at why.
| Option | Monthly payment | Total repaid | Cost to arrange |
|---|---|---|---|
| Speak to the lender | May fall | Depends on what is agreed | Usually none |
| Extend the term | Falls | Rises | None if varied; fees if refinanced |
| Refinance to a lower rate | Falls | May fall or rise | Exit and arrangement fees |
| Consolidate | Usually falls | Usually rises | Several exit fees plus arrangement fee |
| Interest-only or holiday | Falls temporarily | Rises | Usually none; may be recorded |
| Overpay dearest first | Falls once cleared | Falls | Possible overpayment charge |
What not to do
- Do not cancel the direct debit and hope. A missed payment is recorded, triggers charges and can put a facility into default. Speak to the lender before the payment date, not after.
- Do not take a new short-term loan to make the payments on an old one. Stacking borrowing to service borrowing raises the monthly outgoing further and is the pattern providers are most wary of.
- Do not use the tax money. Diverting VAT or PAYE to loan repayments swaps a lender problem for an HMRC problem. If tax is the pressure, a Time to Pay arrangement requested through GOV.UK is the right route.
- Do not sign a personal guarantee or offer security without understanding it. A lower repayment is not worth putting a home at risk for without proper thought.
- Do not ignore the underlying question. If repayments are unaffordable because the business is losing money, no repayment structure fixes that. Business Debtline offers free, impartial help, and our page on high loan repayments covers the warning signs and next steps.
If you would like to talk through which of these options might apply to your business, you can make an enquiry. We can explain what may be relevant and, at your request, may be able to introduce you to third-party finance providers. We do not lend and we do not give advice.
Key takeaways
- Speaking to the existing lender is free and should come before any new application.
- Extending the term, consolidating and payment holidays lower the monthly figure but raise the total repaid.
- Refinancing to a lower rate can cut both, but only if the saving outweighs exit and arrangement fees.
- Overpaying the dearest debt first is the one option that reduces monthly cost and total cost together.
- Never miss a payment without warning, borrow to service borrowing, or divert tax money to loan repayments.
Related guides
- How to improve business cash flow. Speeding up money in and slowing money out.
- Business debt consolidation vs refinancing. Which one your situation calls for.
- What happens when a business cannot repay its loans? The sequence after default and where to get help.