Business Debt

Any money owed by your business is considered a business debt. A business debt may be considered either a priority or a non-priority debt, with priority creditors being awarded stronger powers to regain the money they are owed. In order to keep the average cost of capital to a minimum, a business must be able to balance their use of debt and equity.

When it comes to getting on top of what your business owes, it is advisable to tackle priority business debts first. Examples of these debts include business rent arrears, income tax arrears, VAT arrears, business rates, national insurance arrears, debts owed to major suppliers, and overdue accountant bills.

Once the business is in the position to do so, the focus should shift to the non-priority debts. These may include some building society or bank loans, charge cards, overdrafts and credit cards, doorstep collected loans, catalogues, payday loans, and any overdue payments to non-essential business suppliers.

Incurring debt is often a part of growing your business and becoming profitable. Debt does not always have to be a bad thing for business as achieving a steady, stable growth typically requires a significant amount of cash. With this cash debt, the business can invest in new equipment, bring new employees aboard, open a new branch, fund the expansion of useful marketing efforts and otherwise contribute to the growth of the business.

However, if your business is borrowing more money than it is making then the debt may potentially hurt your business’s finances. With cashflow being so vital to the successful growth of a business, it is easy to misuse debt. This can lead to the business incurring too much debt at one time and becoming overleveraged.

Often when a profitable business fails, it is due to them taking on an excessive amount of debt in order to fund their expansion and growth. The more unstable the business becomes due to dealing with the debt, the fewer lenders will want to become involved. In these situations, business owners may be required to provide a personal guarantee in order to secure a business loan. This means that your personal assets are on the line and may be at risk if the business fails to grow as quickly as it needs to in order to service its debts.

Debt can have a significant effect on the long term cash flow of the business. If a significant amount of your business’s income is going towards servicing the debt, it can be very difficult to continue to grow.

Development is necessary for a business; however, this becomes harder to do when you are limited in your ability to seize opportunities, due to business debt.

Solutions Scotland is a trading style of Milton & Stirling Ltd, Company Number SC587851 – Solutions Scotland, 78a Stanley Street, Glasgow, G41 1JH. DPA number ZA431921

Milton & Stirling Ltd are an Appointed Representative of MichaelAlan Ltd who are authorised & regulated by the Financial Conduct Authority, FRN 690939.

As part of our free service, we’ll review your financial situation, explain the available options and recommend a debt solution which is suitable for you. The risks of all suitable solutions will be explained clearly and if you decide to go ahead with a debt solution we will refer you to one of our trusted providers who specialise in the management of that debt solution. We’ll be paid for introducing you or for the preparatory work we do, depending on your debt solution fees may be payable if ongoing services are provided. Read about fees and key information in our terms & conditions. To find out more about managing your money and getting free debt advice, visit Money Advice Service , an independent service set up to help people manage their money.