A year after the government launched its rescue-loans schemes for businesses hit by Covid-19, repayment demands are beginning to drop through firms’ letter boxes. And if your business is still struggling financially, it is crucial to talk to lenders about a repayment plan as soon as possible.
The government launched the Coronavirus Business Interruption Loan Scheme (CBILS) in March last year, with the Bounce Back loans scheme going live in May. Neither scheme required repayments in the first 12 months of the loan, while the state agreed to cover interest charges for the first year.
Now, however, lenders want to collect their money. For businesses with significant debts following the crisis, demands for repayments may come as a shock. Many firms are also still dealing with the fallout of the pandemic, with trading yet to return to pre-crisis levels. They may find the repayments schedule proposed by their bank too demanding.
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Have you deferred tax?
It is also important to think about loan repayments in the context of other liabilities that the business may face. Another plank of the government’s support package last year gave businesses the opportunity to defer payment of income-tax and VAT bills. Those postponed bills should now have been settled, but many businesses are behind on the payments.
HM Revenue & Customs has so far taken a lenient line in such cases but from July, the tax authority can issue winding-up petitions against firms that do not pay their tax bills. So demands for CBILS and Bounce Back loan scheme repayments will come at the worst possible time for some.
With these pressures mounting, businesses with loans to repay now need to make a sober assessment of their finances. Make cautious assumptions about what is realistic over the coming months and years, given your company’s current financial position and its prospects of recovery.
Lenders will be more sympathetic to businesses that engage with them earlier rather than at the last minute when they are about to default. And there may be ways to mitigate problems. For example, CBILS and Bounce Back loans were offered with repayment terms of up to ten years and six years respectively; if you had planned to pay the money back more quickly, it may be possible to extend the term of the loan to cut monthly repayments down.
If your business has yet to hear from its lender, but is coming up to the one-year anniversary of taking out a loan, be proactive about assessing your position. How much will you have to repay each month and from when? Do those repayments look affordable?
Finally, remember that there is still significant state-backed support available to businesses struggling with the pandemic, particularly in sectors such as retail and leisure where restrictions continue. Claim all the help you are due. Full details are available on the gov.uk website and from the Federation of Small Business and the British Chambers of Commerce.
David Prosser is a regular MoneyWeek columnist, writing on small business and entrepreneurship, as well as pensions and other forms of tax-efficient savings and investments. David has been a financial journalist for almost 30 years, specialising initially in personal finance, and then in broader business coverage. He has worked for national newspaper groups including The Financial Times, The Guardian and Observer, Express Newspapers and, most recently, The Independent, where he served for more than three years as business editor.
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