UK Business Debt Consolidation

Debt consolidation loans for business owners

There are many different forms of business debt, including credit cards, overdrafts and loans. It stands to reason that the more debts a business has, the more money and resource is spent to keep on top of payments. Debt consolidation loans for the self employed mean that business owners can bring together all debts under one loan agreement, which means one monthly payment, one interest rate and one lender.

By 2021, UK businesses are expected to owe a total sum of between £97 billion and £107 billion in unsustainable debt. This figure comes from a report released by TheCityUK that was recently published in the Sunday Times.

How business debt consolidation loans work

A business debt consolidation loan is a form of finance where a company takes out a new loan to pay off existing outstanding debts. When you take out a debt consolidation loan, you’re essentially channelling several debts into a single easy-to-manage loan.

When looking for debt consolidation loans, you’ll want to find a provider that can offer lower interest rates than the combined interest your business is currently paying on its current outstanding debts.

Businesses may struggle to pay back Government Loans

Around £38 billion of this debt will stem from the government-backed coronavirus loan programme – over 910,000 businesses have now taken advantage of the scheme, but many may not be able to pay back the loans.

This is causing great concern, not only for the businesses themselves but also in terms of the knock-on effect on economic recovery as a whole.

British banks have been warned to speed up preparations for debt recovery plans and to start putting more staff training and procedures in place to deal with debt disputes. But what can you do on a personal level if you owe multiple debts?

Can You Consolidate Business Debt?

The short answer is yes, you can consolidate business debt.

Running a business – particularly in the current climate – isn’t always easy. For small-medium enterprises, cash flow can be a huge issue, particularly in the business-to-business sector or if your work is heavily seasonal.

Sometimes, unexpected expenses occur – you might need to replace equipment or may suddenly find that a supplier increases its costs, to name two examples. If you don’t have the upfront cash for this, you could find yourself in debt.

When a business gets into debt, one of the first ports of call is often a business loan. After a period of financial downturn, some companies find themselves at the mercy of taking out multiple business loans at the same time. This can end up pushing the company into the debt spiral.

The debt spiral is where a business struggles to make repayments on multiple forms of finance to the point where interest keeps accruing. This ultimately generates even more debt. The day-to-day running of a business can be difficult enough without having to worry about managing debts, which is where business debt consolidation loans could help.

Business debt consolidation explained

If an unexpected economic situation arises which drastically affects a UK business and may find they have amassed a huge amount of debt in a short period of time, then they could also consider a business debt consolidation loan.

There are a few informal or formal avenues that can help to sort out any business debt issues.

The first step would be to find a recommended financial expert who could provide some sound debt consolidation advice.

A business could consider a company voluntary arrangement (CVA), which is a business debt consolidation solution for Ltd companies. It’s very similar to the process when applying for an Individual Voluntary Arrangement (IVA) when applying for insolvency on a personal basis.

A business could have a part of their debts written off by one or maybe some more of their creditors, but in essence, it’s mainly a deal made between the business and these creditors whereby the business is given some more time to pay off their debts. A bit of breathing space.

There is no obligation to accept a smaller amount to pay-off, but it’s always worth considering because a creditor knows it may receive more money in the long-term if the business was possibly forced into liquidation.

A supervisor, which is an insolvency practitioner, administrates the CVA, but ultimately, the arrangement is between the creditors and the business direct.

The CVA supervisor just acts as a conduit and oversees the business debt consolidation, the existing management structure of the business remains in place.

Types of business debt consolidation

Business debt consolidation means that you can remove main different types of business loan, overdraft and lenders and put it into one single loan agreement with one lender. A business debt consolidation loan can improve business cash flow by creating one monthly payment, which, in turn, reduces administration time and costs because the process has bee streamlined.

Business credit card debt consolidation

If you’re juggling many different business credit cards at once, there is a workable solution that allows you to consolidate your debts and bring them together in one neater package. A business debt consolidation loan allows you to find a better loan option for your business borrowing. By changing one loan for another, more affordable loan, a business may free up some business capital through reduced monthly debt payments.

Business cash advance debt consolidation

Sometimes a business needs to free up some cash and to help the flow of that cash around the business. Often, finance is tied up with loans and overdrafts and it can be hard to transform this into liquid assets. A business debt consolidation loan can make it easier to access cash as the loan brings together debts and loans into one streamlined payment with a smaller monthly repayment amount. This then frees up cash within the business.

Business debt consolidation loan bad credit

Over time, businesses can accrue many different types of loan and financing options, which leads to a complex programme of repayments. This can become even more complex if the loans are impacting a business credit score. Getting further credit with a poor score can be difficult, however, a business debt consolidation loan means that you could have one loan for all outstanding debts with one monthly repayment with only one lender and one interest rate to work with.

A small business debt consolidation loan

Small businesses, in particular, can find staying afloat tricky. A vital cog in the economic wheel, they can really struggle with only the slightest of changes to footfall or demand. Keeping on top of different loans and debts without an accounts department can be equally demanding. A small business debt consolidation loan will bring all outstanding debts and loans together in one loan, with only one monthly payment that’s easier to manage.

Advantages & Disadvantages

There are pros and cons of business consolidation loans, but there’s a lot you can do to mitigate these.  

Pros

Cons

Can I consolidate personal and business debt into one loan?

If you are a freelancer or self-employed without a limited company than those debts would be considered personal debts meaning you could consolidate your debt, however, if your company is a limited company those debts would be legally classed as separate debts from your personal ones, speaking with us we can assess your situation to see what options are available to you.

Let’s take an example of a plumber operating as a sole trader. They agree to take on a large job which takes over a month, with a contract stipulating that invoices will be paid from the client 60 days after the completion of the job.

The busy nature of the project means the plumber cannot take on any other jobs during this time. They will then have to wait a further 60 days to receive payment after the project has drawn to a close.

During the project, the plumber requires supplies from a builder’s merchant, which are purchased on 30 days’ credit. Meanwhile, the plumber’s van (which also doubles as their own personal vehicle) breaks down, and it’s essential for them to continue working.

Therefore, the plumber arranges for the van to be repaired. Without the means to pay for the repairs just yet, the plumber finds themselves in debt to the local garage. One month later, they also owe the builder’s merchant for the supplies. These are simple examples of how personal and business debts can overlap – and thankfully there’s a way to avoid the debt trap with self-employed debt consolidation loans.

How Self Employed Debt Consolidation Loans Work

If you’ve found yourself in debt – some personal, some business-related – and you’re struggling to pay the interest on several different loans, credit cards, supplier accounts and store cards, a self-employed debt consolidation loan could provide you with some respite and breathing space.

Put simply, you pay off your creditors with a debt consolidation loan, and then repay the loan on a monthly basis, at a lower interest rate than your previous debts combined. This helps you to get your finances back on track and allows you to spend less time dealing with the administrative side of paying back creditors, and more time working and making money.

When applying for debt consolidation loans, you should always ensure that you’ll be paying less every month than you are currently expected to pay your existing creditors – otherwise this defeats the purpose of the loan.

How to consolidate business debt

To consolidate business debt that has been accrued from credit cards, overdrafts or loans, businesses can apply for a business consolidation loan. The loan pulls all debts and brings them together in one loan, which will then have a simplified repayment schedule of one payment a month, with one interest rate and one lender to borrow from.  

Best Business debt consolidation companies

Business debt consolidation companies are a far cry from the corporate banks of the past. While there are banks who offer consolidation loans, there are other companies that specialise in lending to different kinds of businesses, such as micro-businesses or SMEs. They might have an emphasis on fair or ethical lending or tailor their loan to your exact circumstance.

Business debt consolidation loan rates

When it comes to choosing a business debt consolidation loan, it will pay to shop around as interest loan rates vary greatly. Ranging from just over 5% up to 36%, you should be able to find one that best suits your needs. While some may offer higher interest rates, they also may be the perfect solution for a company who needs financial support quickly.

Does business debt consolidation actually work for my company?

If your business debt is a result of a lot of incidents which you’d consider a one-time issue, then CVAs are possibly the best route to head for debt assistance.

Company directors can stop any company liquidation and bankruptcy and remain active and fluid if you keep to the agreed terms of the business debt consolidation arrangement.

A business can look towards being debt-free within 5 years. Interest can be frozen and no further interest charged during this CVA period to help the business pay-off the existing loan. Up to 75% of a business’ unsecured debt can be eliminated via a CVA.

A Creditor Voluntary Liquidation (CVL) is an alternative type of business debt consolidation, which many counselling agencies will probably recommend. Parties who are legally entitled to company assets can identify and distribute assets in a liquidation process.

When liquidation happens, the company is dissolved. The CVL is a resolution agreed by the company shareholders. It’s considered voluntary, like in its name, and when a company gets to this point, it’s too far to consider a debt consolidation loan.  It’s pretty much insolvent and is unable to repay in full any outstanding debts.

Unfortunately, the economic recession has forced quite a few UK business into a CVL. It’s the last thing any business shareholder or director would like to hear. A liquidator is nominated to head the CVL business debt consolidation arrangements.

The liquidator will call a meeting of the creditors to investigate the insolvency claims of the directors.  These creditors formally appoint the liquidator. The liquidator may then form a committee to watch the activities of this individual.

The duties of the liquidator to instigate the business debt consolidation is to include converting business assets to cash, investigate and report on the conduct of the company directors, determining how much the company owes and making payments to creditors.