Part of the Government’s response to the Covid-19 pandemic was to offer state-backed loans to support business owners with cash flow. The Covid-19 Recovery Loan Scheme provided businesses with emergency funding to help them stay afloat during the pandemic. But 12 months on, what are the challenges if you can’t pay your loan back? Andrew Jones, a partner at Haines Watts Birmingham, has some insight.
When the pandemic hit last year, a lot of business owners went into panic mode. So, when the Government announced support for businesses in the form of the Covid-19 recovery loan scheme, it was a very welcome announcement.
At Haines Watts in Birmingham, we look after clients from a range of industries such as manufacturing, wholesale, retail and hospitality, and, of course, some were hit harder than others by the pandemic.
The Covid-19 recovery loan however offered businesses a cash injection to give them some security in the short term and keep things ticking over whilst they planned their next move. The loans and the furlough scheme then gave business owners time to adapt initially because many of them desperately needed the cash.
However, one of the big issues for businesses looming on the horizon is that these loans need to be repaid at some point and the question is are businesses yet operating at a level that will enable them to start repaying these loans?
While the Government has backed 80 per cent of loans to the banks and lenders, business owners will still ultimately need to repay what they owe and if they can’t, then they will face the threat of liquidation, unless the Government changes its rules.
Are you at personal financial risk?
While the Bounce Back Loan Scheme and CBILS loans under £250,000 don’t require a personal guarantee, some lenders may have taken them and this could expose business owner to serious financial risk if the company isn’t able to meet the repayments at some point.
It means that the banks will look to the individual and a business owner’s personal assets, including their home, could be on the line. People do need to be aware that if they have a personal guarantee on one of these loans, they are potentially liable for it themselves. I think that’s one of the biggest risks for business owners.
Seek professional support now
The issues will come in the next 12 months when business owners will either have to pay a loan in full or start making capital payments on them.
What I am advising clients now is that they need to have a very good, robust business plan in place with cashflow and trading forecasts. It’s important they plan for when their loan needs to be repaid.
My advice is not to wait until you get to the point when it needs to be repaid. If you plan now and you think you’re going to have an issue, you have time to do something about it.
You should seek advice now from your accountant if you really think you’re going to struggle because they can help you.
Don’t let a surge in sales trick you into complacency
While some of my clients are now seeing a bounce back due to the pent-up demand there has been for hospitality, leisure and retail, I’m reminding them all not to become complacent.
It’s quite interesting that when outdoor hospitality was reopened I was speaking to a pub owner who told me that he’d taken more money that day than he would ever take on a normal Monday in normal trade.
That’s great news, but we’ve just got to hope that there is such continued pent-up demand for services, that when business owners do come to have to repay their loans, the money is there to repay.