Are UK SMEs burdened with bad debt or blessed with good debt?

By Mr Bankruptcy

18th November 2025

Debt has a natural and necessary part to play in the development of any business, from starting up to finding new markets to becoming an established leader.

However, debt can be either good or bad, so it’s important to know in the current challenging economic climate which kind your business is carrying.

Good versus bad debt

Good debt tends to be planned, with repayment carefully managed. It’s often the result of a loan taken out to invest in growth, providing a return on the principal amount, from an increase in productivity or a new market, for example. A good business loan can be taken out at a favourable rate through a reliable lender.

Bad debt, on the other hand, is more likely to be a survival measure – the result of insufficient planning or an unforeseen circumstance, whether that’s a crisis in your firm or an unpredicted downturn in the economy.

A bad debt often comes from a short-term, high-interest loan that enables a company to survive, making up for an immediate cashflow shortfall rather than investing in the future.

Business debt in the UK

A business survey on debt in over 52,000 UK companies earlier this year showed alarmingly large levels of debt, with the average standing at more than £365,000. This goes to show the pressure that many businesses are under just to keep going.

Neither is the debt evenly spread, in terms of sector or geography; maybe unsurprisingly, the wholesale and retail food sectors came out top for debt, at £2.7 billion, closely followed by manufacturing at £2.6 billion. Construction came in at £1.6 billion. These are all capital-intensive intensive industries compared with business services at just £1.4 million.

London led the areas surveyed with a total of £4.94 billion, leaving a large gap before Manchester came in at £370 million.

The survey did suggest that a portion of this debt could be seen as a vote of confidence in the UK economy, but unfortunately, more recent growth figures haven’t borne this out.

Higher operational costs have been blamed for the increase in short-term debt, as inflation pushes up wage demands and increase energy bills. A debt burden hangover from Covid lockdown-era ‘Bounce Back’ loans may also be playing a part.

And uncertainty also plays it part in slowing growth; a later-than-usual budget statement has made space for speculation across the media about who’s going to pick up the tab for all the financial black holes being discovered in the national finances.

Global uncertainties, such as war and the introduction of new tariffs, have also added to a nervous business environment, worrying customers and dampening demand.

The first step to dealing with debt

Uncontrolled, bad business debt can threaten a company’s long-term survival. It can lead to insolvency if the debts can’t be managed, and compulsory liquidation.

Fortunately, there’s a lot of advice available to help business owners and managers, from organisations such as Business Debtline or the Federation of Small Businesses (FSB). The National Debtline and Citizens Advice offer help for individuals.

There’s also action that business owners can take before debt becomes unmanageable. Many will already feel that they’ve cut back as much as they can, but it’s worth considering the following:

• Reviewing and prioritising debts. Prioritise urgent or high-interest debts, and don’t ignore creditors as early engagement can prevent escalation.
• Negotiating with creditors. Some lenders, including HMRC, may offer an extended payment term, or you can request a temporary payment holiday or a more realistic interest rate.
• Boosting cash flow. Offer discounts for early payments to customers and review your own outgoings.
• Increasing revenue. Diversify products or services and target new customer groups or markets. Now may not be the time to cut back on your marketing; try lower cost alternatives such as social media.
• Seeking professional help. You can speak to a debt advisor or accountant who can ensure that you understand your legal obligations, especially around director responsibilities, and suggest the most appropriate way out of your situation, maybe one you may not have been aware of.

Even if it seems that there’s no clear way forward, there is always support available to help you understand the options available to you and your business.

James Rosa Associates

James Rosa Associates is both a debt advisory and debt adjustor service. Our supportive, non-judgemental team of experienced experts offers a full range of advice and professional services, for business owners and directors or individuals looking for a way out of unmanageable debt. We also help people out of a civil or commercial dispute. Our services include:

• Insolvency support
• Negotiated settlements
• Personal assisted bankruptcy
• Mediation

We are authorised and regulated by the Financial Conduct Authority (FRN665061) to work with clients to produce bespoke debt solutions.

Do you qualify for a free consultation?

If you want to tackle an unmanageable debt, or you want to bring a dispute to a fast and cost-effective resolution, we offer a limited number of free consultations.

Contact James Rosa Associates, ring 0845 6807217 or email enquiries@jamesrosa.co.uk to find out if you qualify. The sooner you take the first step, the sooner we can help you to move forward.

Reducing Financial Stress: Strategies to Strengthen Your Financial Well-Being

By Brittany Fisher of financiallywell.info

18th November 2025

Managing money can be a balancing act between income, expenses, and peace of mind. Financial stress often creeps in quietly — through unpaid bills, uncertain job security, or the rising cost of living. But while money worries can feel overwhelming, there are practical, research-backed ways to reduce anxiety and build long-term stability.

This article explores clear strategies to regain control of your finances, improve day-to-day confidence, and nurture long-term well-being.

The Short Version

If you remember nothing else, remember this: financial peace starts with awareness and structure. Track your spending, automate your savings, build a small emergency cushion, and find ways to reduce recurring costs.

Working from home, consolidating debts, and learning mindful spending habits can all reduce financial pressure and create room to breathe.

Get a Clear Picture of Where You Stand

Many people avoid looking closely at their finances out of fear — but clarity is the first step toward control. Start by reviewing your income, recurring bills, and variable expenses. Tools like Mint, You Need a Budget, or even a simple spreadsheet can reveal where your money actually goes each month.

Checklist: How to Build a Clear Financial Snapshot

1. Gather your last three months of bank and credit card statements.
   
   
2. List all sources of income (salary, side gigs, etc.).
   
   
3. Categorize expenses: essentials, non-essentials, and savings.
   
   
4. Identify at least two spending leaks (subscriptions, delivery costs, unused memberships).
   
   
5. Set a small weekly review reminder to stay aware.

Awareness doesn’t just stop panic; it gives you options.

Automate the Basics

Once you know where your money goes, simplify it. Automation removes emotion and procrastination from your financial routine. Set up automatic transfers so a portion of each paycheck moves into savings or debt repayment before you even see it. Most banks support auto-pay for utilities and loans — reducing late fees and mental clutter.

Find Ways to Reduce Financial Stress

A significant portion of financial anxiety comes from daily costs — commuting, eating out, or maintaining appearances for work. One effective modern approach is to find ways to reduce financial stress by rethinking how and where you work.

Working from home can make a measurable difference: eliminating daily commutes cuts fuel and vehicle costs, reduces the need for frequent dining out, and minimizes spending on professional attire. Beyond saving money, remote work can improve focus and reduce workplace stress, helping you feel more balanced.

Build an Emergency Fund (Start Small)

Financial well-being isn’t about being wealthy — it’s about resilience. Even a few hundred dollars set aside can transform how you handle unexpected events like car repairs or medical bills. Start with a micro-goal: $500. Then aim for one month’s expenses.

Keep this money separate — ideally in a high-yield savings account such as those available through Bankrate’s comparison tool — so it’s both safe and accessible when you need it.

Simplify and Consolidate Your Debts

Debt can quietly erode both finances and mental health. Instead of juggling multiple payments, explore ways to streamline repayment.

Options include:

• Debt consolidation loans: One monthly payment at a lower interest rate.
  
  
• Snowball or avalanche methods: Focus on either smallest balances (for motivation) or the highest interest rates (for efficiency).
  
  
• Credit counseling: Reputable nonprofits like the National Foundation for Credit Counseling can help you negotiate or restructure payments.

Consistency, not perfection, is what reduces stress here.

Reevaluate Your Lifestyle and Spending Values

Sometimes, the biggest relief comes not from earning more but from redefining “enough.”
 Mindful spending means making sure every dollar aligns with your goals or happiness. Before each purchase, ask:

“Will this improve my life next month, or just this moment?”

Apps like PocketGuard or simple journaling can help track emotional spending patterns.

Eliminating one habitual expense — daily coffee, delivery meals, unnecessary subscriptions — can redirect hundreds annually toward debt freedom or savings.

Common Financial Stress Triggers and Practical Fixes

Keep Health and Finances Linked

Money stress isn’t just mental; it shows up physically through poor sleep, fatigue, and tension. Exercise, meditation, and sleep hygiene improve focus and emotional control — both essential for smart financial decisions. Free resources from Headspace or community fitness programs can support these habits without adding cost.

One Product Worth Mentioning

If you prefer an all-in-one way to manage budgeting, saving, and credit tracking, Personal Capital (available at personalcapital.com) offers a free dashboard that syncs your accounts and provides spending insights. It’s especially helpful for visual learners who want to see their financial progress in charts rather than spreadsheets.

Frequently Asked Questions (FAQ)

What’s the fastest way to reduce money anxiety?
Start with one actionable step — like automating your savings or setting up bill reminders. Quick wins build confidence, which helps you tackle larger goals.

How much should I have in emergency savings?
Experts often suggest three to six months of expenses, but even $500 can protect against common emergencies and lower stress immediately.

Is it worth paying off debt or saving first?
If high-interest debt (like credit cards) exists, focus there first. Otherwise, balance both: pay debts steadily while contributing a small amount to savings for emergencies.

Can talking about money help?
Absolutely. Sharing financial challenges with a trusted friend, counselor, or advisor can reduce isolation and offer new perspectives.

In Closing

Financial stress thrives in silence and uncertainty — but both can be replaced with structure and action. By automating your finances, trimming avoidable costs, working more efficiently (even from home), and focusing on long-term resilience, you can transform anxiety into confidence. Small steps compound into calm.

When you understand where your money goes, you take back control — and that control is the real wealth that keeps you steady in any storm.

Brittany Fisher has been a Certified Public Accountant for over two decades, with expertise in taxes, personal finance, and financial literacy. She founded Financiallywell.info, her own website dedicated to providing valuable insight and advice about managing money. Through her work, Brittany strives to empower individuals with the skills and understanding needed to make sound financial decisions – from budgeting and saving to retirement planning and beyond.