For directors under pressure, consolidating debts can be a practical way to buy breathing space and keep trading. Company debt consolidation usually involves taking out new finance to repay several existing debts. Those might include supplier balances, HMRC arrears, credit cards, overdrafts or short-term loans.
This kind of consolidation does not write off debt. It simply replaces multiple payments with a single monthly repayment that feels more manageable and can often be repaid over a longer period.
However, company debt consolidation is not suitable for every business. In some cases, it delays an inevitable insolvency and makes the eventual outcome worse for both creditors and directors.
Informal ways to consolidate company debt
Business loans or refinancing
Some companies refinance existing borrowing into a longer-term business loan. This can reduce monthly repayments, but it usually requires good credit, up-to-date accounts and a viable trading outlook.
Approval is often conditional on a personal guarantee or security over assets. This can put your personal finances and assets at risk and should be approached with extreme caution (if at all), especially if you’re already approaching insolvency.
You should also be aware that there are online companies offering quick loans, even for those with struggling businesses. These are often given at an eye-watering interest rate and with a personal guarantee, making them a high-risk move that should be avoided.
Overdraft extensions
An overdraft extension can temporarily absorb multiple short-term pressures. It can feel flexible, but it also increases reliance on short-term borrowing and usually comes with higher interest costs.
Asset-backed finance
If the business owns property, vehicles, equipment or stock, lenders may offer asset-backed lending to consolidate debts. This puts those assets at risk if repayments are missed.
Director-funded consolidation
Some directors inject personal funds or take out personal borrowing to clear company debts. This is risky and often blurs the line between personal and company finances, especially if the business later fails. Remember, your business has limited liability protection (unless you’ve signed a personal guarantee on a business loan) but you do not.
When consolidation might work
Debt consolidation can work in very limited circumstances. It’s most likely to be appropriate where the company is solvent but has a short-term cash flow issue and a clear route back to profitability.
For example:
- A one-off delayed customer payment has caused temporary pressure
- Margins remain healthy and orders are strong
- If there are no outstanding HMRC debts
- There is no creditor legal action underway
- The company can afford repayments without falling behind again
In these cases, consolidation may stabilise cash flow and give the business time to recover. Even then, it should be approached cautiously and with proper financial forecasting.
Why consolidation often fails for struggling companies
For many companies facing serious debt pressure, consolidation does not solve the underlying problem. It often shifts the pressure rather than removing it.
It increases total debt
Longer repayment terms usually mean higher overall interest costs. The business ends up paying more over time, even if monthly payments are lower.
It masks insolvency
If a company cannot pay its debts as they fall due, or liabilities outweigh assets, it may already be insolvent. Taking on new borrowing in that position risks breaching director duties.
It relies on future performance
Consolidation assumes the business will improve quickly enough to meet repayments. If trading conditions do not improve, the position can deteriorate faster.
It often involves personal guarantees
Many consolidation products require directors to guarantee the debt personally. If the company fails, the liability can follow you long after the business has closed.
It can worsen director risk
Continuing to trade and borrow while insolvent can lead to accusations of wrongful trading if creditor losses increase. This is a key risk directors underestimate.
Warning signs consolidation is the wrong option
Debt consolidation is rarely appropriate if any of the following apply:
- HMRC arrears are growing month on month
- You are missing PAYE or VAT deadlines repeatedly
- Suppliers are threatening legal action or stopping supply
- You are juggling which creditors to pay each month
- New borrowing would be used purely to plug gaps
- The business has no clear route back to profitability
In these situations, consolidation usually delays a more serious reckoning and increases stress for directors.
Alternatives to debt consolidation
If consolidation isn’t viable, there are regulated solutions designed specifically for companies in financial distress. These options focus on affordability, creditor fairness and director protection
Time to pay arrangements with HMRC
If tax debt is the main issue, a Time to Pay arrangement can spread arrears into manageable instalments. This only works if the business can meet both the instalments and ongoing tax liabilities. It does not protect against other creditors and is short term by design.
Company Voluntary Arrangement (CVA)
A Company Voluntary Arrangement allows a business to consolidate unsecured debts into one affordable monthly payment agreed with creditors. Unlike informal consolidation, a licensed insolvency practitioner must be involved to manage the process.
A CVA can include HMRC, suppliers and landlords, is based on what the business can realistically afford, and is legally binding once approved. However, it only works if the company is viable in the long term.
Administration
This is not a consolidation tool but a protective restructuring process. It’s used where creditor pressure is intense and assets, jobs or contracts need protecting. An insolvency practitioner takes control and assesses rescue or sale options. Administration also provides immediate legal protection through a statutory moratorium.
Creditors’ Voluntary Liquidation (CVL)
If consolidation and recovery is not realistic, a Creditors’ Voluntary Liquidation draws a line under unmanageable debt. Unsecured debts are written off and the company is closed in an orderly way. For many directors, this is the point where pressure finally stops and clarity returns.
Common questions directors ask about consolidating company debts
Can I consolidate HMRC debt?
HMRC does not usually allow its debts to be consolidated into third-party loans. It prefers Time to Pay arrangements or formal insolvency solutions where affordability is tested.
Will consolidation stop creditor pressure?
Only temporarily. Creditors may pause action if debts are cleared, but if repayments fail later, pressure often returns more aggressively.
Is consolidation better than liquidation?
They serve very different purposes. Consolidation aims to keep a viable business trading. Liquidation closes a business that cannot recover. Choosing the wrong one increases risk.
Does consolidation affect my personal position?
It can. Personal guarantees and wrongful trading risks are the main areas of exposure. These should always be assessed before taking on new borrowing.
Why professional advice matters early
Company debt consolidation isn’t a one-size-fits-all solution. It can work for solvent businesses facing short-term issues but it often fails for companies already under serious financial strain.
For insolvent companies, consolidation can increase debt, delay action and expose directors to personal risk. Regulated solutions exist specifically to deal with these situations and should always be explored before taking on new borrowing.
If you are considering consolidating company debts, the safest first step is to understand whether it is genuinely appropriate for your business. A short conversation with a qualified insolvency practitioner can clarify your position, explain your duties and help you avoid costly mistakes.
Get free, confidential advice today and take control of your next move with clarity and confidence.
