A simple guide to managing business debt for London SMEs

Business debt isn't rare. It's part of running a business.

Most small businesses in London owe money to someone. It might be a loan you took out during a quiet patch. A supplier you haven't paid yet. A tax bill that keeps getting pushed back.

Debt isn't always a sign something's gone wrong – it often just means you're trying to keep things going.

But it gets hard to ignore when it starts to pile up. Especially in London, where costs are high and delays in getting paid can quickly turn into real pressure.

This short guide is for business owners who feel like they're always one invoice or rent bill behind. It covers what debt looks like, what to watch out for, what you can do – and who can help.

Skip to the "What support is available?" section.

What counts as business debt?

Business debt is money your business owes. It could be:

• A loan from a bank.

• A business credit card.

• An unpaid invoice to a supplier.

• Money borrowed against unpaid invoices.

• Hire purchase or lease agreements for equipment.

All these types of debt come with different costs and repayment terms. Some are short-term, some long-term. Some cost more if you miss payments.

Why do small businesses in London fall into debt?

There are lots of reasons. Some common ones:

• Rent, wages and other fixed costs are high.

• Customers take too long to pay.

• You've taken on more work than you can fund.

• Sales have dropped but costs haven't.

• Unexpected events like lockdowns, transport strikes or supply issues.

Often, debt builds up slowly. You borrow to get through a slow month, then borrow again the next. It's easy to lose track.

Spotting the warning signs

You don't always realise when debt is becoming a problem. It creeps in.

One month you're using your credit card to pay for stock. The next, you're juggling supplier payments and hoping a late invoice clears in time to cover wages.

A few signs often show up before things get serious.

• You're dipping into your overdraft more than you used to or relying on short-term fixes to get through each month.

• Bills are sitting unpaid a bit longer.

• Rent's due, but the cash isn't there yet.

• HMRC reminders are piling up in your inbox.

You might notice that you've lost track of exactly how much you owe – or that you're avoiding looking.

Maybe you've started putting off calls from creditors. Or you're waking up at 3am running through numbers in your head.

These are all signs worth paying attention to. They don't always mean you're in deep trouble, but they are a nudge to step back and look properly at what's going on. Problems are easier to sort out early than when you're backed into a corner.

What debt means for your business

Debt on its own isn't always a bad thing. It can help your business grow, cover a quiet season or give you space to invest. But when it starts to drag, it affects more than just your bank balance.

• If you fall behind on payments, your business credit score can take a hit. That makes it harder – and more expensive – to borrow in the future.

  Lenders may turn you down or offer worse terms. Suppliers might tighten your credit, which only adds more pressure.

• If things go further, you could be at risk of insolvency. That means your business can't pay what it owes, when it's due.

  At that point, creditors can take legal action. You might face winding-up petitions, court demands or visits from enforcement officers.

• And if you're a company director, you've got legal responsibilities too. You're expected to know when your business is in financial trouble and to act in your creditors' best interests.

If you keep trading when the business can't pay its way, and you take on more debt, you could be held personally liable. That's not something to take lightly.

Debt doesn't just affect your accounts – it changes how much control you have. That's why it's worth tackling it early, before it starts making decisions for you.

Ways to manage debt

1. Understand your cash

Start with the basics. Look at how much money is coming in, how much is going out and when.

A simple cash flow forecast – even just for the next three months – can help you see where the gaps are. Make sure you include everything:

• Rent.

• Wages.

• Tax bills.

• Loan repayments.

• Supplier costs.

It doesn't need to be complicated, just accurate enough to spot any shortfalls before they happen. In a city like London, where fixed costs are high and things can change fast, this matters.

2. Talk to people you owe

Avoiding calls or emails from creditors only makes things harder. Most people you owe money to – suppliers, landlords, lenders – will speak to you if you're upfront with them.

If you're struggling to pay, explain why and ask if they can give you more time or spread the payments.

Some might offer a payment break or agree to a lower amount if you're paying in good faith.

The sooner you have the conversation, the more options you'll have.

3. Look at refinancing

If you've got expensive debt – like a credit card or short-term loan – it's worth checking if you can replace it with something cheaper.

That could mean switching to a longer-term loan with lower interest or rolling several debts into one so you're not juggling repayments.

But refinancing only helps if the new deal actually improves your position. Always check the full cost, not just the monthly figure.

4. Get advice early

If the numbers aren't adding up and the pressure's building, get help. There are people who deal with this every day.

Free services like Business Debtline can talk you through your options in plain English (see What support is available? below).

If your situation is more serious, you might need to speak to an insolvency adviser or restructuring expert. They can look at the full picture and help you find a realistic way forward.

The key is not to wait until it's urgent. Most solutions only work if you act before the business reaches crisis point.

If you need to restructure

Sometimes cutting costs or renegotiating payments isn't enough. If your business is still losing money and the debt keeps growing, it might be time to think about a bigger change.

That could mean restructuring what you owe, how the business operates or whether it can keep going at all.

Debt consolidation

This is when you combine several debts into one. You might take out a single loan to pay off everything else, so you're only dealing with one monthly repayment.

It can make things simpler and sometimes cheaper – especially if the interest rate is lower. But it only works if your business is still viable and you can afford the new repayment plan.

Company Voluntary Arrangement (CVA)

A CVA is a formal agreement between your company and its creditors. You agree to pay back part of what you owe over time and, in return, they agree not to take legal action.

It needs to be set up by a licensed insolvency practitioner and approved by your creditors. It won't work for every business, but it can give you space to recover if your core business is still strong.

Administration

If the business is in serious trouble but has some value left – like assets, contracts or a customer base – going into administration can be a way to protect it while a plan is worked out.

An administrator is appointed to take control and either try to rescue the company or sell parts of it to pay back creditors.

Creditors' Voluntary Liquidation (CVL)

If the business can't carry on and there's no realistic way to turn it around, a CVL lets you close it down in an organised way.

A licensed insolvency practitioner sells off the assets and shares the proceeds with the people you owe.

It's not an easy decision, but sometimes it's the cleanest way to move forward – especially if trading on would only make the debts worse.

Restructuring sounds dramatic, but it isn't always a failure. You're making the best of a difficult situation and protecting what you can – whether that's part of the business, your staff or your own finances.

The important thing is to get advice before the choices run out.

Closing a business safely

Sometimes the best option is to close the business.

That might feel like giving up, but it can also be the most responsible thing to do – especially if the debts are growing and there's no clear way to turn things around.

If your business is a limited company, there's a legal process to follow. You'll need to:

• Let your creditors know.

• Deal with any outstanding tax or employee issues.

• Work with a licensed insolvency practitioner if the business can't pay its debts.

They'll help you wind things down properly, sell any assets and make sure the process is handled fairly.

If you're a sole trader, the debts are usually tied to you personally. That doesn't mean you have to deal with it all on your own, but it does mean you may need to set up a repayment plan or, in more serious cases, look at options like bankruptcy.

Again, speak to someone before making any decisions – there may be routes you haven't considered.

Closing a business isn't easy. But dragging things out when the money's run out can cause more stress, damage your credit and leave you with bigger problems later.

If you know the business can't recover, a clean break handled properly can give you space to start again, without the weight of unpaid debt hanging over you.

What support is available?

If you're struggling with debt, you're not expected to figure it all out on your own.

There are support schemes out there – some backed by the government, others run locally – that can help you get back on your feet or manage things more clearly.

• Start Up Loans: this is a government-backed loan for newer businesses, with fixed interest and free mentoring. If you're just getting going or need to reset, it could help.

• The Growth Guarantee Scheme (GGS): a government scheme designed to make it easier for small businesses to borrow. It doesn't give you the money directly, but it encourages lenders to say yes by covering some of the risk.

• Business Debtline: a free and confidential advice service for small business owners and people who are self-employed.

  It can help you work through business and personal debt, make a budget and deal with creditors. You can speak to someone on the phone or use its online tools.

• StepChange: a debt charity best known for personal debt help, but it also supports sole traders and self-employed people with business-related debt.

  Its advice is free and it can help you explore payment plans or formal options if things have gone too far.

• National Debtline: offers clear, practical advice if you're dealing with debt. It's not business-specific, but it does cover situations that affect small business owners – especially sole traders.

• Debt Free Advice: if you'd rather speak to someone in person, Debt Free Advice runs face-to-face advice centres across all 32 London boroughs. It's a good option if you prefer local help or want to talk things through with someone in real life.

• Your borough council: many London boroughs run their own small business support services. Some offer free advice sessions, workshops on finance or links to local consultants. It's worth checking what's available where you're based.

• HMRC payment plans: if your debt includes unpaid tax, VAT or National Insurance, HMRC may let you spread payments over time. You'll need to contact them early – ideally before you miss a deadline – to agree a "Time to Pay" arrangement.

And as you're in London, Grow London Local is worth a look. We bring together local advice, events, tools and free one-to-one support.

We're backed by the Mayor of London and aim to make it easier for small businesses to find help that actually fits.

None of these options are magic fixes. But they can take the pressure off, give you more time or open up new ways to manage your cash. The key is knowing they exist – and reaching out before things feel unmanageable.

How to avoid future debt problems

You can't control everything, but you can build stronger habits:

• Keep a simple cash flow forecast and update it regularly.

• Chase invoices promptly and set clear payment terms.

• Avoid long payment gaps between paying for things and getting paid.

• Build a small emergency fund if you can.

• Keep costs lean and flexible where possible.

• Don't ignore money problems – act early and ask for help if you need it.

Useful services on Grow London Local

Here are a few support offers you'll find on Grow London Local:

• Start-up loans

• Free debt search service

• Personalised sessions for financial stress relief

• Check your business credit score before applying for finance

• Corporate insolvency and restructuring advisory

What to do next

If your business is in debt, don't wait for it to sort itself out. Take a proper look at the numbers. Talk to the people you owe. Ask for help if you need it.

Plenty of businesses go through tough patches. The ones that come out the other side usually act early and get support.

Start with one small step today – even if it's just making a list of what you owe. The sooner you face it, the more control you'll have over what happens next.

Grow London Local: Support for London's small businesses

No matter where you're based in London, you'll find relevant support and guidance on business planning, sales and marketing and much more, as well as opportunities to connect with like-minded business owners. Visit Grow London Local now