Borrowing is a normal and often necessary part of running a business. Used well, finance gives businesses the means to invest, grow and bridge temporary gaps in cash flow. The problem arises when short-term borrowing stops being a strategic tool and starts becoming a sticking plaster.

It’s a distinction that matters more than ever right now. Recent data shows that lending to UK small and medium-sized businesses (SMEs) rose by almost 10% to £68bn in 2025, with the majority of finance coming from challenger banks and non-bank lenders rather than traditional high street institutions.

The good news is that means more choice than ever for businesses seeking finance for growth or down periods, with the opportunity for manual underwriting and terms that traditional banks might not be in the position to match. But, with more choice comes more complexity, and not all products are created equal.

In Q4 2025, it was found that 37% of all small business loan applications were taken out purely to support cash flow – up from 33% the year before. That shift away from growth-led borrowing and towards survival-mode finance is a pattern that can quietly spiral into something far more serious.

For insight into what is and isn’t a healthy business relationship with finance, we spoke to Stuart Wilkie, Head of Commercial Finance at commercial finance broker, Anglo Scottish Finance – a Durham-based financial broker and Broker Innovator of the Year 2025.

Here are five warning signs that your business might be becoming reliant on short-term borrowing.

1. You’re borrowing to cover existing repayments

This is perhaps the clearest signal that a borrowing pattern has become unsustainable – and one Stuart Wilkie says he sees more often than many business owners might expect.

“If you’ve taken out a new loan to meet the repayments on a previous one, you’re no longer using finance to invest – you’re using it to limp on,” says Wilkie. “It’s a pattern that tends to escalate. Each new facility comes with its own interest rate, terms and repayment schedule, and over time, the cumulative pressure of servicing multiple debts can leave very little room for anything else. What began as a short-term solution becomes a long-term drain on cash flow.

“The money only buys time if the underlying issue isn’t addressed. We’ve seen businesses take out facility after facility, each one slightly more expensive than the last, because they’re now a higher-risk borrower. At some point, the cost of servicing the debt outweighs any benefit the original loan was supposed to deliver.

“If you recognise this pattern, the priority should be stepping back and having an honest conversation about what’s driving the need for finance in the first place – and whether a more appropriate, longer-term product could consolidate and reduce your repayment burden.”

2. You’ve taken multiple finance facilities in a short space of time

There’s a practice in the unsecured lending market sometimes referred to as ‘loan stacking’ – where a business takes out two or more unsecured loans in quick succession, often through different lenders or brokers. For business owners without a background in finance, it’s easy to see how it happens.

“Loan stacking is a growing concern and one we expect to receive significantly more attention in the financial press over the coming 12 to 18 months,” says Wilkie. “When a business is under cash flow pressure, taking out a second or third loan can feel like the most immediate solution, but each lender may be unaware of the others, meaning a business can quickly find itself committed to several concurrent loans with overlapping repayment schedules.

“It’s also worth being aware that unsecured lending isn’t regulated in the same way as consumer finance, which means the onus is on the business owner to understand what they’re signing up to. Because each loan is typically secured against a director’s personal guarantee, the individual is ultimately liable if the business can’t repay – which poses a significant personal risk that’s easy to underestimate when you’re focused on keeping things moving.

“If you’ve drawn down on more than one unsecured facility within a short period, it’s worth taking stock of your full picture of debt and making sure you have a clear plan for managing it.”

3. Your repayment terms are putting pressure on daily operations

Loan stacking often compounds an issue that deserves scrutiny in its own right: the repayment structure of the product itself. Wilkie says this is one of the first things any responsible broker should interrogate.

“Some unsecured business loans can be structured with daily or weekly repayments,” says Wilkie. “For a business with a seasonal revenue cycle, or one operating on 30- or 60-day invoice terms, that cadence can create a chronic shortfall between incomings and outgoings. The result is often further borrowing to cover the gap – and so the cycle continues.

“We always ask whether the repayment structure of a product matches the way a business actually generates income. If it doesn’t, even a well-performing business can find itself in difficulty. If your repayment schedule is routinely forcing you to dip into operational funds or personal reserves to meet it, the product you’ve been sold may simply not be appropriate for your business model.”

4. You’re using unsecured finance to fund long-term assets or investments

Unsecured short-term loans are designed to solve short-term problems – but Wilkie says they are sometimes used for something quite different, often to the significant detriment of the businesses involved.

“We sometimes see businesses that have been steered towards an unsecured loan to buy a van or a piece of equipment, when asset finance would have been cheaper, better structured and more appropriate for their needs,” says Wilkie. “Asset finance is specifically designed for this kind of investment. It allows businesses to spread the cost of an asset over its useful lifetime, with repayment terms that align with the return that the asset generates.

“The interest rates are typically lower because the asset itself provides security, and the repayment pressure is considerably less acute than that of an unsecured loan. Using an unsecured short-term loan to finance a long-term asset is a mismatch that tends to cost businesses significantly more than it should. If you’re in that position, it’s worth exploring whether refinancing could meaningfully reduce your monthly outgoings.”

5. You’re borrowing reactively rather than strategically

According to Wilkie, understanding your cash flow in detail is central to understanding why reactive borrowing is so common – and potentially so damaging.

“There’s a meaningful difference between borrowing with a plan and borrowing in a panic,” says Wilkie. “Reactive borrowing – taking on finance quickly to resolve an immediate crisis without fully understanding the terms, the total cost or the alternatives – is one of the most common routes into persistent financial difficulty for SMEs.

“Many business owners are experts in their trade, not in finance. When they’re under pressure, they can be susceptible to accepting the first offer they’re given, or agreeing to terms that sound manageable but compound quickly. The role of a credible broker is to slow that process down – to understand the business properly and make sure the product genuinely fits.

“The traditional bank manager who knew your business and your circumstances has largely disappeared. That leaves a lot of SMEs navigating a complex, fragmented lending market without a trusted guide – and some of the actors in that market are not operating in their customers’ best interest.”

What to do if you recognise these signs

If any of the above feels familiar, Wilkie’s advice is straightforward.

“Seek independent advice before taking on anything further,” he says. “A good broker will review your existing facilities, identify whether there’s a more suitable product available and, if necessary, tell you that the right answer is to pause rather than borrow. The businesses that get into serious difficulty are rarely the ones that asked too many questions – they’re the ones that didn’t ask enough.”

Stuart Wilkie is Head of Commercial Finance at Anglo Scottish Finance.