Business Debt

Business Debt


Running and managing a business can be stressful – especially when it comes to balancing the books. However, business debt is often required to launch a successful venture and cover start-up costs such as equipment, office space, and transportation.

In this guide, we’ll explore business debt, including what business debt is, its common causes, and where you can find debt advice and support if your business is struggling financially.



What is business debt?

Whether you’re self-employed, a sole trader, or one of Scotland’s thousands of small business owners, every company is forced to take on a level of debt at one point or another.

That liability might taken on as a way to exploit the tax code, buy out a rival business, or to finance bigger business premises.

All of the above are business debts – credit taken on by your business which you intend to pay back in the future.

Business debt is common, and a certain level of debt might even be healthy, helping businesses with cash flow and giving them the financial clout they need to grow.

There are times when repaying that debt isn’t possible, however. Sometimes as a business owner you can fall into financial difficulty through no fault of your own, making it more difficult to repay what you borrowed.

Too much debt can leave business finances in disarray, and leave business owners strapped for cash and worried about how they’re going to cover their bills – especially if they’re in the first few years of trading.

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How do businesses end up with debt problems?

There are various reasons why businesses end up with problem debt. All businesses have their own structures, markets, and business models, so it depends on the circumstances of the companies and individuals involved. That said, there are some common reasons businesses end in insolvency.

Changing market conditions

One of the most obvious reasons why a previously successful business might get into financial trouble is that the market is unpredictable.

Industry experts make a living from trying to predict future market conditions, but it’s impossible to be 100% certain which companies will remain successful.

The coronavirus is an excellent example. There were millions of retail and hospitality businesses making money before the pandemic, but a sudden, unforeseen shift in the market can leave businesses without a customer base and being hounded by creditors they can’t afford to repay.

Customers failing to pay for goods or services

This is particularly common among small business owners and the self-employed.

If you’re a sole trader or a one-person business, you may only have one or two big clients who keep the wheels turning while you do your best to expand.

It’s not unheard of for clients to refuse to pay for the goods or services provided, especially if you don’t have the power of a big limited company behind you. Unfortunately for small businesses, one client failing to pay an invoice can be the difference between success and crippling debt.

Losing control of costs and business finances

Some debts are down to simple financial incompetence. Every business undertakes expensive projects, takes on new business suppliers, or might even enter into a new partnership in order to try and progress as an organisation.

These projects need to be strictly costed, however. When costs aren’t properly accounted for and projects come in well over budget, it can leave businesses struggling to pay suppliers, and might result in an organsiation relying on expensive credit – like credit card debt – in order to pay creditors they owe money to.

What happens if I can’t pay my business debt?

If you’re business is struggling with debt and you cant afford to repay, don’t panic.

Take action. The longer you avoid business debts, the more likely it is you will face serious consequences, like court action.

There are ways you can self-help, starting with getting in touch with your creditors.

If you contact suppliers or lenders and let them know you can’t afford the amount they’re demanding, they may be wiling to accept a portion of your debt rather than the full cost, or help you structure a repayment plan that gives you more time to settle your debt.

If your creditors won’t deal with you directly, it’s time to talk to the experts.

There are several UK debt charities who can offer you free debt advice, and some that specialise in business debts – like the business debtline.

Another option is a debt management company, an organisation that specialises in formal debt solutions.

If you provide them the details of your situation, they’ll work out a debt solution for you, like a company voluntary arrangement that allows you to pay what you owe with a series of debt repayments. You can find out more on the debt solutions section of the Carrington Dean website.

"There’s light at the end of the tunnel"


Before receiving help from Carrington Dean Raemond was skipping meals so his family didn’t go without. Now he’s back in control and using his money to make memories that’ll last longer than his debt.

"There’s light at the end of the tunnel"


I decided, about 10 years ago, to do something about my life. It got to the stage where it was becoming very depressing, soul destroying; I couldn’t get work back in the industry that I’d loved for over 25 years and there were spiraling debt just mounting up and mounting up.

Now, after having this in place, I’ve got some extra money every month, and I do treat my son to bits and pieces, days out, and he enjoys that.

How do I manage business debt properly?

Just like when dealing with any type of debt, the most important thing to do when tackling business debt is to be honest about the situation.

It can be all too easy to bury your head in the sand in the hope that your problems vanish, but debt doesn’t take a day off – no matter how much you want it to.

Dealing with business debt doesn’t automatically mean that you face sequestration or bankruptcy.

Even if your organisation is on the brink of closure there are simple steps you can take in a bid to prevent further action from being taken.

Know which numbers are key to your business finance

It’s vital to be aware of your income, expenditure, profits and losses when dealing with business debt.

Keeping a close eye on the bottom line is important, of course, but it is equally as important to understand what the figures leading to that number actually mean.

By keeping a close eye on the figures you’ll be able to spot any potential issues in advance and if you can’t prevent them it at least offers the opportunity to prepare for whatever they are.

“It’s vital to be aware of your income, expenditure, profits and losses when dealing with business debt.”

Plan for changes in circumstances

Having a close understanding of your finances will also allow you to make accurate cash flow forecasts.

Expect the unexpected and you will be prepared so it’s important to keep an eye on your forecasts to ensure that you can prepare for any potential issues – allowing you to access support or advice in advance – and regain control.

Maintain an open dialogue with creditors and every employee

If you find yourself falling behind in payments, or better yet are aware in advance that you will be unable to make a payment, it’s vital to speak up.

Never be afraid to keep the people you owe money to in the loop.

This will offer the opportunity to discuss spreading your repayments and potentially stopping more serious legal action in the long run.

Sell non-essential business assets and reduce overheads

One of the easiest ways to repay business debt you owe is to sell non-essential company assets.

These are the added luxuries that are nice to have in the business but don’t play a key role in the day-to-day running of the organisation, like an underutilised office space.

There are other cost-custing measures you can take: something as simple as opting for a different energy supplier with a better tariff to save cash or downsizing or relocating office on the bigger end of the scale.

It might seem daunting but this can be a quick and easy way to reduce costs and repay what you owe.

It’s important to note, if you struggle to manage your business debt and become insolvent, it is illegal to continue trading and your business may end up in sequestration.

It is imperative that you take action as soon as you have concerns about company finances.

Where can I find debt advice and support for business debts?

When it comes to money advice, trust Carrington Dean

Business debt is stressful. For many people, their business is their life’s work, and realising their business is struggling financially can be difficult to accept.

The most important thing is not to avoid the situation. Instead, talk to Carrington Dean.

We’re one of the UK’s best-known providers of business debt solutions. Our team can offer you support and guidance to help get your finances back on track.

If you’re business is struggling and you’re not sure where to turn, talk to Carrington Dean about all the options available to you.

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