Don't default, discuss!

A survey of lenders published by the Bank of England today shows that the number of small businesses falling behind on their loan repayments rose in the three months to the end of November.

The pressure on servicing debt is undoubtedly increasing for many small business owners. Around a third that have debt, have debt levels more than 10 times their cash balances, or are in their overdraft. Around a fifth have monthly debt repayments that are over 15% of their current account inflows, and around 10% of businesses fall into both these buckets. With repayments on CBILS and Bounceback loans now starting for many businesses, lenders expect defaults to continue to increase in Q1.

This doesn't, however, mean you should default if it is at all avoidable.

Defaulting on a loan is a serious business. Even though the lender has the reassurance of the government guarantee on CBILS and Bounceback loans, it has to exhaust all other means of recovery before it can call upon the government. This is inevitably stressful for all concerned. 

A sensible dialogue with the lender, or an independent specialist if you prefer, can generate many options:

1. An extended repayment holiday or interest-only period might be possible under the 'pay as you grow' scheme.
2. A new loan could be agreed under the Recovery Loan Scheme to consolidate existing borrowing and provide some more working capital.
3. Your borrowing could be restructured into more appropriate forms of borrowing e.g. invoice finance for working capital, and asset refinance for machinery and equipment that you have previously bought.
4. More radical options can include closing down or mothballing loss-making parts of your business to reduce overheads. For this, a business restructuring or insolvency expert can be invaluable in helping you see the wood from the trees in terms of what can be done.

If you are experiencing difficulty in keeping on top of existing commitments, we are here to help in any way that we can. Please feel free to contact us for impartial and confidential advice.