Debt restructuring: How it could benefit your business
Running a business means making tough financial decisions every day…and some of those choices require borrowing to get done.
You may have needed to take out a loan to:
Capitalise on a time-limited opportunity
Invest in much-needed growth
Cover costs associated with an unexpected bill or expense.
Whatever the reason, the decision may have been the right one in that moment yet could end up having consequences for your business over the long term.
If you had to take out a loan with high-interest rates or unfavourable terms, repayments are likely putting pressure on your cash flow. They may be boxing in your business and slowing its growth.
You may be spending the majority of your profits covering repayments rather than investing back into your business.
It might be time to review your options.
Debt restructuring could help you make your borrowing more manageable, boost cash flow, and create greater financial flexibility for the future.
What is debt restructuring?
Debt restructuring is the process of reviewing your existing borrowing and changing how it's managed to better suit your business' current circumstances.
It can take several forms.
For example, you might:
Refinance one or more existing loans
Consolidate multiple repayments into a single loan
Extend your repayment term
Replace expensive short-term borrowing with a more sustainable form of finance.
The aim isn't necessarily to borrow more money.
Instead, it's about making your existing finance work better for your business today.
Businesses evolve.
You might have grown significantly since taking out your original finance, or perhaps your circumstances have changed following a difficult trading period. Whatever the reason, regularly reviewing your borrowing can be part of good financial management.
Why might a business consider restructuring its debt?
There are several reasons why restructuring could be worth considering.
It could improve your cash flow
Cash flow is crucial to the day-to-day running of any business. Even a profitable business can experience pressure if a significant amount of its available cash is being used to meet loan repayments.
If restructuring reduces your monthly commitments, you could have more working capital available for wages, stock, marketing, unexpected expenses, or other essential costs.
That additional breathing space could make it easier to manage the ups and downs of running a business.
It enables you to simplify your finances
Managing several loans, overdrafts, and finance agreements can quickly become complicated.
You may have different repayment dates, interest rates, and terms to keep track of, making it harder to get a clear picture of your overall financial position.
Where appropriate, consolidating multiple forms of borrowing into a single repayment could make your finances easier to manage and your monthly budgeting more straightforward.
It allows you to replace expensive borrowing
When you need funding quickly, short-term finance can sometimes provide an immediate solution. However, some forms of borrowing can carry higher interest rates or substantial monthly repayments.
If your business is now in a stronger position, refinancing could provide an opportunity to replace more expensive borrowing with finance that is better suited to your current circumstances.
It might create much-needed room for business growth
Your existing repayments shouldn't prevent you from investing in your business's future.
If restructuring your borrowing improves your monthly cash flow, you may have more flexibility to invest in areas such as recruiting staff, purchasing equipment, increasing stock, marketing, or expanding your premises.
The important thing is to look at your borrowing as part of your wider business strategy, rather than as something that exists separately from your plans for growth.
5 signs it could be time to review your borrowing
You don't have to be in serious financial difficulty before considering debt restructuring.
It could be worth reviewing your options if:
Monthly repayments are becoming difficult to manage
You’re making repayments to several different lenders
You need to rely on an overdraft to cover everyday costs
Your existing borrowing was taken out when interest rates were particularly high
Investment into your business has stalled because your repayments are leaving little spare cash.
If several of these sound familiar, it could be worth having a conversation with a lender, like First Enterprise, about whether your current finance is still right for your business.
How does refinancing work?
Refinancing is one of the most common forms of debt restructuring.
Essentially, it involves replacing an existing loan, or several existing forms of borrowing, with new finance that better reflects your business's current needs.
Depending on your circumstances, refinancing could potentially reduce your monthly repayments, simplify several debts into one loan, provide a more manageable repayment schedule, or replace higher-interest borrowing with more affordable finance.
However, refinancing isn't automatically the right answer for every business.
For example, extending a loan term could reduce your monthly repayments but mean you pay more interest over the lifetime of the loan. The right solution will depend on factors including your existing borrowing, interest rates, repayment terms, and the financial position of your business.
That's why it's important to understand the full cost and benefits before making a decision.
What could the difference look like?
Imagine your business currently has three forms of borrowing:
Equipment finance: £1000 per month
Business loan: £600 per month
Short-term finance: £800 per month
That's £2400 in monthly repayments.
If these were refinanced into a single loan with monthly repayments of £1400, your business would have an additional £1000 each month available for other purposes.
Over a year, that's £12,000 of additional cash flow.
Of course, this is only an example. Refinancing won't always reduce monthly repayments, and the outcome will depend on your individual circumstances and the terms available.
Yet, where the numbers stack up, freeing up cash could give your business more room to manoeuvre.
That could mean investing in new equipment, recruiting an employee, increasing your marketing activity, building a cash reserve, or simply having more flexibility when unexpected costs arise.
Don't believe everything you hear about debt restructuring
Debt restructuring is sometimes associated with businesses that are struggling. But reviewing your borrowing isn't necessarily a sign that something has gone wrong.
Our Deputy Director, Danielle Davis, explains the subject in her recent interview: Good debt vs bad debt: Understanding the difference for your business
Successful businesses can benefit from regularly assessing whether their finance remains appropriate as they grow and change.
It's also important to remember that refinancing doesn't necessarily mean taking on more debt. In many cases, it simply means replacing existing borrowing with a different financial arrangement.
And having an existing loan doesn't always mean you're stuck with the same arrangement forever. As your business develops, your financial requirements can change too.
Is debt restructuring right for your business?
There are a few questions you can ask yourself:
Are your repayments limiting your ability to invest?
Would lower monthly commitments improve your cash flow?
Are you paying high interest on existing borrowing?
Would managing one repayment instead of several make your finances easier?
Has your business changed significantly since you first borrowed?
If you've answered yes to several of these questions, it may be worth exploring what's available.
Before approaching us to start the process of refinancing, it might be useful to get your financial information together. Recent accounts, management accounts, bank statements, details of your existing borrowing, and a cashflow forecast can all help provide a clearer picture of your business.
How First Enterprise can help with Debt Restructuring
At First Enterprise, we understand that no two businesses are the same.
Our experienced lending team takes the time to understand your circumstances, your goals, and what you're trying to achieve before discussing potential funding solutions.
We support businesses that may find it difficult to access finance through traditional lenders, taking a more personal approach to understanding the bigger picture.
If refinancing could be appropriate for your business, we'll explain the options available in plain English, so you can make an informed decision about your next steps.
We seek to empower you and make your finance work for your business.
Your borrowing should support you rather than hold you back.
If your current finance no longer reflects where your business is today, reviewing your options could help you improve cash flow, simplify your finances, and create more flexibility for the future.
Debt restructuring isn't about admitting defeat. It's about taking a proactive approach to your finances and making sure your funding continues to support your ambitions.
If you'd like to discuss your circumstances with our team, get in touch with First Enterprise today by completing the form below or by giving us a call at 0345 602 7355.
Want to understand more about debt restructuring and whether it could benefit your business?
Keep an eye out for our downloadable guide, Debt restructuring: A practical guide to improving cash flow, coming out soon. It'll provide a more detailed look at your options, how refinancing works, and what you should consider before making a decision.
Please note:
This article is for general information only and does not constitute advice. All information is correct at the time of writing and is subject to change in the future.
Please do not act based on anything you might read in this article.
We always recommend that you seek direct financial advice from a relevant expert or professional before making any financial decisions.
First Enterprise is a not-for-profit, FCA-regulated finance provider offering unsecured loans from £500 to £250,000 for start-ups and growing businesses across the UK.
We support businesses that struggle to access mainstream finance, with a focus on underrepresented groups. Funding is delivered through government-backed national and regional programmes.
We offer human-made lending decisions, a dedicated advisor for every applicant, and no penalties for early repayment.
