How to escape high-cost business lending and get back on the road to growth

High-cost business finance rarely starts as a bad decision.

Most businesses take expensive funding when they're under pressure. A major customer pays late. Payroll is due. An opportunity can't wait. Traditional lenders move too slowly, so a fast online lender offers quick approval and immediate cash.

At first, the solution works.

The problem comes later, when repayments begin draining cash flow, restricting growth and forcing difficult decisions. What started as a short-term fix can quickly become a long-term burden.

The good news is that businesses aren't necessarily trapped. With the right approach, it's often possible to replace expensive borrowing with a more sustainable funding structure.

Many high-cost lending products are designed around speed rather than long-term affordability.

Businesses that struggle to access traditional funding often turn to online lenders, short-term loans or merchant cash advances because they're quick and easy to obtain.

Unfortunately, the convenience can come at a significant cost.

Examples highlighted by industry organisations include loans carrying interest rates above 60% APR and, in some cases, rates reaching 300% APR. Some businesses end up taking additional loans simply to service existing repayments.

Merchant cash advances can be particularly problematic. Instead of traditional interest rates, they often use factor rates and frequent repayments that can severely affect cash flow.

Daily or weekly payment withdrawals might seem manageable initially. Over time, however, they can leave businesses permanently short of working capital.

High-cost borrowing often creates a recognisable pattern. You may notice that:

• Most incoming cash immediately goes toward loan repayments
• Payroll and supplier payments become increasingly stressful
• Growth opportunities are delayed due to lack of working capital
• Multiple loans have been stacked together
• Financial decisions become focused on surviving the next repayment instead of growing the business

Many business owners describe a feeling of constantly running to stand still. The business may be trading successfully, yet cash never seems to accumulate.

One of the biggest mistakes businesses make is waiting too long.

According to advisers working with distressed businesses, expensive debt becomes harder to solve the longer it remains in place. Cash flow weakens, credit profiles deteriorate and refinancing options may become more limited over time.

The strongest refinancing opportunities often exist before serious financial damage occurs.

If repayments are becoming uncomfortable, it's usually worth reviewing your options immediately rather than waiting for the situation to worsen.

Many businesses underestimate the true cost of borrowing.

The headline interest rate only tells part of the story. Fees, commissions, origination charges, broker costs and repayment structures can dramatically increase the real cost of finance.

When reviewing existing borrowing, focus on:

• Annual Percentage Rate (APR)
• Total Cost of Capital (TCC)
• Origination fees
• Early repayment penalties
• Total lifetime borrowing costs

Comparing these figures gives a much clearer picture than looking at monthly repayments alone.

For many businesses, refinancing offers the most realistic route out of expensive lending.

Refinancing replaces existing debt with a new loan that offers more sustainable terms. This could involve:

• Lower interest rates
• Longer repayment periods
• Monthly rather than daily repayments
• Consolidation of multiple loans into one facility

The impact can be significant.

Examples cited by community lenders include businesses reducing monthly repayments by more than 75%, freeing substantial working capital for operations and growth.

Replacing short-term, high-cost debt with a longer-term facility often gives businesses something they've been missing: time.

One of the most dangerous responses to expensive borrowing is taking out more expensive borrowing.

Businesses under pressure sometimes use a second loan to service the first, then a third to service the second. This process, often called debt stacking, can rapidly spiral out of control.

Instead of solving the problem, it usually increases repayment pressure and reduces future options.

A structured refinancing solution is generally more sustainable than repeatedly layering new debt onto existing obligations.

Not all lenders are equal.

One recurring theme across many studies is that businesses often accept the first funding offer available when they're under pressure. This can be expensive.

Before committing to any solution:

• Compare multiple offers
• Request clear APR calculations
• Review all fees and charges
• Understand any early repayment penalties
• Compare total borrowing costs over the full term

Transparency matters.

Industry commentators have called for clearer pricing, comparable APR disclosures and improved transparency around commissions and referral arrangements.

Many businesses assume their only choices are banks or high-cost online lenders.

That's rarely true.

Community Development Finance Institutions (CDFIs) and other specialist lenders exist specifically to support businesses that struggle to access mainstream finance. They often provide fairer pricing, clearer terms and additional support services.

CDFIs commonly:

• Offer refinancing solutions
• Provide business guidance and coaching
• Use relationship-based lending approaches
• Focus on long-term sustainability
• Challenge whether a loan is actually appropriate before approving it

Many also provide support to businesses that have become trapped in high-cost debt cycles.

Whether you're dealing with a lender, broker or adviser, don't focus solely on approval speed.

Ask:

• What is the true APR?
• What are the total borrowing costs?
• How is the adviser paid?
• Are there prepayment penalties?
• What happens if circumstances change?
• Are there alternative solutions available?

Understanding incentives is particularly important. Several industry commentators have highlighted concerns around commission structures and pricing transparency within some parts of the SME lending market.

The goal is to create a borrowing structure that supports long-term business health.

The best funding solutions align repayments with cash flow, provide adequate breathing room and leave sufficient working capital to run and grow the business.

High-cost lending thrives on urgency. Escaping it requires taking a step back, understanding the true cost of your borrowing and exploring all available options. For many businesses, refinancing, debt consolidation or working with specialist lenders can transform an unsustainable situation into a manageable one. The earlier that process begins, the more options are likely to be available.

Using our finance finder tool, you can see what options you currently have and make sure you’re aiming for the right one.

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