When a payment looms and cash is short, more borrowing can look like the quick fix. For most companies it is a trap that turns a cash-flow gap into a debt spiral.
Why it rarely helps
Borrowing to pay a debt swaps one obligation for two and adds cost on top. If the underlying problem is that income has fallen, new debt does not fix it — it just moves the shortfall forward and makes it bigger.
The arrangement route is usually cheaper
An arrangement on your existing loan is designed for exactly this. Interest continues at 0.25% per day and cannot exceed the 100% cap, so the cost of a managed delay is known and limited — usually far less than the cost of stacking a new facility on top.
When more finance can make sense
Occasionally new, well-priced finance against a confirmed contract or invoice is a genuine bridge. If you are considering it, weigh it carefully and take independent advice — Business Debtline gives free, confidential debt advice to small businesses and the self-employed at businessdebtline.org or on 0800 197 6026.
Before borrowing to cover a payment, talk to us about an arrangement — it is often the better answer.
We lend only to UK limited companies and LLPs, and the loan is to the company with no director personal guarantee. As business finance outside the consumer-credit regime, it is not covered by the Financial Ombudsman Service or FSCS.
See also: How do we avoid making difficulty worse with quick-fix borrowing?, What not to do when your company cannot pay, What options are there if my company cannot pay this month?.