Murdoch MacLennan

Last March lenders moved swiftly to support businesses by providing vital capital repayment holidays on existing debt arrangements, with many then subsequently extending the term up to nine months.

It was a proactive and highly effective move that will have prevented many business closures but with another lockdown now upon us businesses should be able to extend the repayment holiday, ideally for up to a further six months. There is a high risk that liquidity and cash flow problems arising from the latest lockdown could trigger a wave of business closures, however an extension of the repayment holiday facility could help prevent many failures.

The rapid recovery in the economy in the late summer and early Autumn indicated that we could see a similar bounce once there are clear signs that the pandemic is under control.

Hopefully, matters will have improved by the summer and businesses currently in lockdown will be able to start trading again, and economic activity recovers. The extension of the repayment holiday facility should therefore be a relatively short-term arrangement.

Many businesses will have separately taken on new debt via CBILS/BBLs which have a 12-month capital holiday built into the facility. Capital repayments on these loans will be due from April onwards.

Lenders are now under increased pressure, as these short-term arrangements come to an end, and will be assessing the loans and their impact on risk levels, asset values, capital costs and potential bad debt.

Lenders are businesses too, and whilst CBILS bring an 80% government guarantee, these loans still carry some risk and therefore will be under scrutiny by lenders. If there is a view that an end to the pandemic is now in sight, businesses should be able to formally extend the capital payment holidays and therefore still be here when the economy recovers and be able to repay their debts.

Early action on pre-Covid debt now could prevent considerable damage to businesses in the longer term.