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Rising self-employment comes at a cost for tens of thousands in debt

  • ​Half of callers to Business Debtline have debts of £10,000 or more

  • 61% have used personal credit to cover business costs in the last 2 years

  • Many affected by irregular incomes, late payments and a business skills gap

A growing number of small business owners and self-employed people are facing high levels of debt as they struggle to keep their businesses afloat, according to new research from Business Debtline. Findings show that half (49%) of the people contacting the service last year had debt totaling £10,000 or more, with nearly a quarter (23%) owing more than £30,000.
Business Debtline, the UK’s only dedicated free debt advice service for people who are self-employed and other small business owners, helped more than 36,000 people in 2017, with demand for the service increasing.
With self-employment now standing at 15 percent of total UK employment and small businesses helping to drive the UK economy, the report – Taking care of business – highlights eight key challenges facing the people behind these businesses and the steps needed to support them.
Issues such as late payments, low and variable incomes and a lack of essential business management skills are identified as some of the key challenges that can lead to financial difficulty and in some cases business failure.
Both business and personal debts are common amongst the people helped via Business Debtline, with the two often intermixed, further complicating their situation.
The report uses insight from data collected via advisers at Business Debtline, surveys and an analysis conducted by Experian, which found that Business Debtline clients are overrepresented in households that tend to be younger, with lower household incomes, high uses of credit and limited resilience in terms of savings and pensions.
Low and irregular income
While the people helped by Business Debtline had a wide income range, 39 percent had gross business annual turnover below £25,000. Low and irregular income were major challenges and often prevented small business owners from saving, investing in the business and having the financial resilience to deal with changes in circumstances such as ill health. More than six in 10 callers surveyed (61%) said they had used personal credit at some point to pay for business costs in the past two years.
Late payments exacerbating debt problems
Nearly half (45%) of callers to Business Debtline surveyed said they experienced problems with late payments, where they are uncertain when the money they have earned will be paid. The issue was common for both sole traders and company directors. Whilst not necessarily the reason for going into debt, late payments often led to increased debt problems, and could make it harder to pay tax, business debts as well as household expenses including rent and energy bills.
Lack of essential business management skills
Business failure was highlighted as one of the main reasons for contacting Business Debtline. Many external factors can affect a businesses success, however many of the people helped by Business Debtline lack some essential skills and knowledge needed to run a business. Before starting trading, most felt confident completing a budget (80%) but they were less confident constructing a business plan (59%) and completing tax and VAT returns (47%). After seeking advice from Business Debtline, 82% of callers reported that they felt more in control of their finances, with 86% saying they were less likely to find themselves in a similar situation again.
Vulnerability an underlying factor
A significant proportion (69%) of Business Debtline clients surveyed considered themselves to be in a vulnerable situation. Financial difficulty was the main reason given, with depression, anxiety and stress commonly cited. For many, being in a vulnerable situation caused them to struggle to trade, further impacting their income.
In response to these challenges, the Money Advice Trust – the charity that runs Business Debtline – has set out a range of recommendations for government, regulators and creditors across sectors.  These include calls for:
  • the government’s new Single Financial Guidance Body to ensure that self-employed people are well served across its debt advice, money guidance and pension guidance functions
  • more powers for the Small Business Commissioner, including the power to fine persistent late payers and an expanded remit to cover the public sector
  • creditors to extend their work on supporting personal customers in vulnerable circumstances to their small business customers.
Joanna Elson OBE, chief executive of the Money Advice Trust, the charity that runs Business Debtline, said:
“Self-employment and small business ownership continues to grow and play a crucial role in driving forward our economy. While many of these businesses are able to flourish, a growing number are struggling with high levels of debt, putting both their business and personal finances at risk.
“Many of the people behind these businesses are in need of advice and information at an earlier stage of their journey. There is support out there but the government needs to do more to proactively champion these opportunities to ensure that these businesses receive the help they need to succeed.
“For those already in difficulty there is some good news with the inclusion of sole traders in the government’s planned Breathing Space scheme. However, too many people with business debts are suffering in silence for too long before seeking advice.
“At Business Debtline, more than four in 10 of the people we help wait a year or longer before contacting us. It is crucial that any self-employed person or small business owner who is struggling to cope seeks advice as soon as possible.”
Business Debtline offers free advice for people who are self-employed or small business owners at
Read the full report here.
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