BUSINESS STRUGGLING WITH DEBT? HOW TO REGAIN CONTROL
Released On 15th Mar 2022
Many small and medium-sized enterprises (SMEs) were hit hardest at the beginning of the pandemic.
They had access to support, like the Bounce Back Loan, which was easier to access and had lower interest rates, but those only helped during the short term.
Now a growing number of SMEs are struggling with debt. The latest Bank of England Credit Conditions Survey shows that a significant proportion of banks (44 per cent) reported an increase in loan defaults by small companies in the third quarter of this year.
This is twice the levels seen during the height of the pandemic.
There are options for businesses that have got into a debt spiral, including:
Consolidate or refinance loans
Whilst it doesn’t necessarily deal with underlying profitability it may make sense to consolidate several loans into a single payment or refinance an existing loan. This might provide lower instalments and give a business time for trade to recover.
With inflation increasing, businesses should take advantage of the historically low interest rates that currently exist, the expectation appears to be that this won’t last for long.
You should seek independent advice before doing anything around consolidating or refinancing loans. Be particularly alert to any change in the request for security or guarantees that could have a longer term impact.
Tackle late-paying customers
Late payments are the bane of most small businesses. Despite Government efforts to tackle this issue, it continues to be a problem for many.
Challenging customers about their debts can be difficult. However, businesses should strengthen their credit control processes so they are paid on time.
Focus on cash flow
Cash flow is the lifeblood of your business and there are some simple measures you can put in place to help keep it healthy.
For example:
- Improve your process for chasing up debtors
- Agree on payment terms in advance
- Lease rather than buy equipment or vehicles
- Review and reduce business costs.
Boost your revenue
As well as cutting costs, you can also tackle a cash flow crisis by improving your turnover.
This can be achieved by:
- Increasing leads to attract more customers
- Raising your prices
- Finding more ways to cross-sell or upsell your services or products
- Engage your staff and seek their input. They may well have ideas that are well worth putting into action.
Managing your income and cash flow can be challenging so seeking professional advice and insights could pay dividends. Think about the initial cashflow impact of increasing sales if that will mean holding additional inventory.
Avoid debt in favour of other forms of finance
You could explore the following:
- Liquidating assets – If there are non-core assets the business doesn’t need or can source through other means, consider liquidating these assets.
- Look for new investors – Can you generate income through the sale of shares? Have you considered the tax-efficient Enterprise Investment Scheme?
- Peer-to-peer lending or equity crowdfunding – These alternative forms of finance are great for businesses that can’t obtain traditional finance.
- Invoice financing – If you have a large number of late payments, you could finance the invoices and get paid sooner.
- Borrowing from friends or family – Beware, this can put a strain on relationships.
Make sure you’re getting fair treatment from lenders
You’re entitled to be treated fairly by your bank or building society.
The Lending Standards Board operates as an independent body (albeit one funded by its registered financial firms), with an independent board made up of non-executive directors.
Don’t let the stress of debt get the better of you. Contact us today to find out how we can help you with effective strategies.
