How to deal with problem debt as a small business owner
By Mr Bankruptcy
16th January 2025
You had a great idea for meeting a need or solving a problem, you spotted a niche in the market and you decided to take the plunge and set up a small business or become self-employed.
You turned your idea into reality, but instead of enjoying the rewards for satisfying customers, employing local people and adding to the economy you’re facing what looks like an insurmountable debt problem. It’s giving you sleepless nights and putting your relationship with friends and family under stress, especially if you’ve made a personal guarantee for a business loan. What can you do about it?
Tough times for business
Firstly, it’s important to realise that you aren’t alone. Last year, Business Matters magazine reported on a survey of over 600 UK small and medium-sized Enterprises (SMEs) which found that 44% of respondents had come close to shutting down in 2024.
You may have done the sums and taken on a sustainable business loan to get started, but like many other businesses today, you are facing many additional challenges to your cashflow, and ability to keep up with repayments:
- High business rates and rents
- Finding the right employees to grow your business and increase turnover
- Increasing borrowing costs
- Inflation hitting raw material and stock prices
- Higher energy and other utility bills
- Costly regulatory burdens
On top of all this, from April businesses face increases in their payroll bill. Employer National Insurance contributions rise from 13.8 to 15% and the salary threshold drops from £9,100 to £5,000. The Chancellor also announced a 6.7% increase in the minimum wage, all adding to pressure on SMEs.
What can you do?
If you are struggling to make debt repayments, it’s important firstly to face up to the reality of the situation and take initial actions. You may think you run a lean operation, but are there other areas where you can either increase your income or cut business costs? It often comes back to basic business practices: reviewing budgets, cutting costs and exploring alternatives, such as available relief schemes.
It’s also helpful to talk to others about a debt problem. Not only can it reduce stress and offer emotional support, but your team – partners, managers, staff, your bookkeeper or accountant – may also have fresh ideas for increasing income or reducing operating costs.
Maybe you have a business mentor, or a support group such as a local business association or networking group, that you can talk to. They will have a wealth of experience and advice because plenty of successful businesspeople have been in your shoes at some point.
It’s also important to keep lines of communication open with creditors. If you explain your situation and show willingness to look for solutions, you may find them more flexible and willing to help than you think, rearranging debt repayments or extending the loan term, rather than taking more formal debt recovery action.
A worst-case scenario
It may turn out that even after you’ve done all you can and you’ve prioritised your debt repayments, you’ve run out of options and your debt is becoming unmanageable. In that case it’s important to talk to a professional debt advisor who can look at other options, including bankruptcy.
In one case I dealt with, I was referred to a client who ran a bathroom supply and fitting business with his son. He faced 51 separate debts, mainly with trade suppliers, totalling more than £424,000.
Our client had planned to sell his home to negotiate full and final settlements with his creditors but one of them issued a Statutory Demand for repayment.
We worked with all his creditors to reach an amicable conclusion, but problems arose with the house sale and a negotiated settlement was no longer possible, so the creditor petitioned for our client’s bankruptcy.
We prepared a Statement of Affairs and accompanied the client at his interview with the Insolvency Service, remaining in support and dealing with their queries until he was discharged. Ultimately, we were able to write off his entire debt.
So, even when it looks as if there’s no way ahead, support is always available from many different sources – professional advisors, charities, colleagues and your family. They can help you to understand all the options open to you and your business, or simply give you the confidence to take the next step.
James Rosa Associates
James Rosa associates is a firm of debt advisors and debt adjustors. Known for our supportive, non-judgemental and friendly approach, we offer a full range of advice and professional services to business owner/directors as well as individuals facing unmanageable debt and seek a solution, or involved in civil or commercial disputes. Our services include:
We are, of course, authorised and regulated by the Financial Conduct Authority (FRN665061) to work with clients, producing bespoke solutions for individual circumstances.
Find out if you qualify for a free consultation
If you need to deal with an unmanageable debt or bring a dispute to a swift and less costly resolution, contact James Rosa Associates by ringing 0845 6807217 or emailing enquiries@jamesrosa.co.uk. You may qualify for one of our limited number of free consultations.
Please be advised that all views expressed in these posts are those of the author and not of James Rosa Associates ltd.