If you miss business loan repayments, the lender will usually contact you, may add arrears charges or default interest, and can report missed payments to credit reference agencies. If the problem isn’t resolved, the lender may demand the full balance, take back any financed asset, enforce security such as property, call on any personal guarantee, or take court action.
The most important step is to talk to your lender early, before payments are missed if you can. Free, confidential advice is available from Business Debtline on 0800 197 6026. If you are a company director and the company may be insolvent, you have specific legal duties, so take professional advice promptly. This guide is general information, not legal or debt advice.
What to do first
When cash is tight it is natural to put off difficult conversations, but acting early usually gives you more options. A sensible order of steps is:
- Work out where you stand: list every debt, who it’s owed to, the monthly payment, any security or personal guarantee, and any arrears.
- Build a realistic cash flow forecast for the next three months so you know what you can afford.
- Contact your lender before the next payment is due. Explain what has happened and what you can realistically pay.
- Get free, independent advice. Business Debtline is a charity offering free, confidential advice to self-employed people and small businesses.
- Speak to your accountant, and if your company may be insolvent, a licensed insolvency practitioner.
Business Debtline’s free advice line is 0800 197 6026 (Monday to Friday, 9am to 8pm), and it also offers webchat.
What typically happens when payments are missed
Every agreement is different, so check your own terms, but the process often follows a similar pattern:
| Stage | What may happen |
|---|---|
| First missed payment | Contact from the lender; possible late payment fees or default interest |
| Ongoing arrears | Missed payments may be reported to credit reference agencies, affecting business and possibly personal credit records |
| Formal demand | The lender may issue a default notice or demand repayment of the full balance |
| Recovery | Financed assets may be collected, security enforced or personal guarantees called on |
| Legal action | The lender may take court action, and for a company could seek to wind it up; the Insolvency Service notes a lender may ask the court to close a company that cannot repay |
How it differs by type of finance
If you are worried about a guarantee you have signed, our guide on personal guarantees explains how they work.
- Unsecured business loans: there is no specific asset charged, but lenders often hold a personal guarantee from directors and may take legal action to recover the debt.
- Secured loans and commercial mortgages: the property or other asset used as security may be repossessed if repayments are not kept up.
- Asset finance (hire purchase and leasing): the lender usually owns the asset until the agreement ends, so it may take it back. You may still owe any shortfall after it is sold.
- Personal guarantees: if the business can’t pay, the lender may ask you to pay personally. Business Debtline explains that a limited company director is not personally responsible for company debts unless they have signed a personal guarantee or been made liable by a court after a formal liquidation.
- Sole traders and partnerships: there is no separate company, so business debts are your personal debts.
Options your lender may consider
Lenders generally prefer a workable plan to recovery action, although they are not obliged to agree to any particular request. Depending on your circumstances, options may include:
- A short payment holiday or period of reduced or interest-only payments
- Extending the term to lower monthly payments (this usually increases the total cost)
- Restructuring or consolidating facilities with the same lender
- Selling non-essential assets to reduce the balance
- For tax arrears, an HMRC Time to Pay arrangement (see our guide on financing a VAT bill)
Get any agreement in writing, and only agree to payments you can genuinely keep up.
If you’re a company director
The Insolvency Service explains that if a company becomes insolvent, either because it cannot pay its bills as they fall due or because its debts are larger than its assets, directors’ duties shift towards the company’s creditors. Directors must protect company assets, treat creditors equally, avoid making creditors’ position worse and consult or consider appointing an insolvency practitioner.
It also warns that directors must not prioritise themselves or connected parties, or repay personally guaranteed debts ahead of other creditors, when a company is insolvent. Continuing to trade when there is no reasonable prospect of avoiding insolvency (wrongful trading) can lead to personal liability or disqualification. If you think this could apply to you, take professional advice from a licensed insolvency practitioner, solicitor or accountant straight away.
Can refinancing help?
Sometimes. If the business is fundamentally viable but a facility no longer fits, for example a short-term loan with high repayments, moving to a longer term or releasing equity from assets you own can ease monthly pressure. Business Debtline advises thinking carefully before taking on new credit to consolidate debts.
New borrowing is not the right answer if the business cannot afford its existing commitments. As a broker, not a lender, we will be honest if we don’t think more finance would help, and we would always encourage you to speak to Business Debtline or an adviser first if you are already in arrears.
Key takeaways
- Talk to your lender early, ideally before a payment is missed.
- Missed payments can lead to fees, credit file markers, asset recovery, security enforcement or court action.
- Personal guarantees and secured lending can put personal assets, including your home, at risk.
- Company directors have specific duties if the company may be insolvent; take professional advice.
- Free, confidential advice is available from Business Debtline on 0800 197 6026.
We are a credit broker, not a lender. Any finance is subject to status and the lender's assessment. This guide is general information, not personal financial, legal or tax advice.
Sources checked
Information checked on . General information only, not financial, legal or tax advice. Finance is subject to status and lender approval.
- Business Debtline – Free, confidential debt advice for self-employed people and small businesses
- Business Debtline – Call our free debt advice line
- Business Debtline – Your non-priority debts
- Business Debtline – Debt consolidation: what to think about before you borrow
- GOV.UK (Insolvency Service) – Director information hub: Director duties upon insolvency
- GOV.UK (Insolvency Service) – Director information hub: Misconceptions about being a director
- GOV.UK (Insolvency Service) – Director information hub: Loans and funding
- GOV.UK – Company health check: keeping your business on track