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7 ways to reduce your business debt

If your business has problems with debt, there are a number of things you can do to help tackle it.

1. Consolidate or refinance your loans

If you have a number of different loans, you may be able to reduce the monthly burden of your debt payments by consolidating your existing loans into one loan at a lower interest rate.

If you just have one loan, you might want to refinance it.

Learn more in our guide to consolidating or refinancing your business debt

2. Cut costs by implementing a zero budget

A zero-based budget can help you lower your costs by making sure you're justifying every penny of your business' outlay, thereby reducing needless spending. It also helps you to enforce a culture of cost management throughout your business.

However, the process can be complex and there may be opposition from managers who fear their budgets are under threat and who don't relish having to justify their spending.

Learn 10 ways to reduce your business costs

3. Improve cashflow

Depending on your business, there may be things you can do to bolster your cash position.

Here are some simple measures you can put in place:

  • Improving your process for chasing up debtors. Learn more about how to deal with late payments
  • Agreeing payment terms in advance
  • Renting rather than buying equipment or vehicles
  • Selling and leasing back assets, such as machinery, equipment, computers, phone systems and even your business premises. The Finance and Leasing Association works with companies that provide this form of finance.

4. Seek out grants and support

You may be eligible for grants or other forms of support to help offset your debt.

In reaction to the COVID-19 pandemic, the UK Government has launched grants that are available via local authorities.

Also available are a range of regional and industry-specific business grants, although you'll have to make sure you meet the eligibility criteria.

5. Seek equity finance

One way of reducing your debt is to raise money by selling a share of your business to existing or new investors. You needn't lose control of your business, provided the investors take a minority stake.

Investors are abundant and looking for a good deal. And it’s not just their cash that’s available, but their expertise too. Shaun Barton National Online Business Operations Director at Real Business Rescue, part of corporate recovery specialist Begbies Traynor

Common equity finance products include:

  • angel investment
  • venture capital
  • private equity

Learn more about raising equity finance

6. Increase sales

Increasing sales is one way of improving cashflow in the medium term, although you may need more working capital in the short term to produce the goods or services you'll sell.

Digital channels can offer a cost-effective method of improving sales, as many small businesses have found during the coronavirus pandemic.

Learn 9 ways to boost your online sales

7. Restructure

If your business can't:

  • trade its way out of debt
  • get additional finance, due to its limited financial performance

using an insolvency process to restructure itself may make sense.

Learn more about the different types of insolvency process.

How insolvency can help

According to insolvency practitioner Moorfields Advisory, an insolvency process can allow you to:

  • rationalise (reorganise) your business without the need to expend substantial working capital
  • compromise some liabilities (determine which debts you'll need to pay in full, and which you won't) and potentially recover losses sustained during COVID-19
  • refinance or secure additional capital, where previously your weak balance sheet or low levels of working capital made you unattractive to lenders

Read more about insolvency in Moorfields Advisory's useful guide

Reference to any organisation, business and event on this page does not constitute an endorsement or recommendation from the British Business Bank or the UK Government. Whilst we make reasonable efforts to keep the information on this page up to date, we do not guarantee or warrant (implied or otherwise) that it is current, accurate or complete. The information is intended for general information purposes only and does not take into account your personal situation, nor does it constitute legal, financial, tax or other professional advice. You should always consider whether the information is applicable to your particular circumstances and, where appropriate, seek professional or specialist advice or support.

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Making business finance work for you

Our Making business finance work for you guide is designed to help you make an informed choice about accessing the right type of finance for you and your business.

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