UK SMEs are seeking advice on how to avoid dangerous levels of debt accumulated on government-sponsored loans during the Covid-19 pandemic, and some are considering prepack management. increase.
Listed restructuring firm Begbies Traynor said more than half of UK companies have “toxic debt” and could struggle to repay in the next 12 months, according to the analysis.
Julie Palmer, a partner at Begbies Traynor, said he saw increasing inquiries about the prepack process, a bankruptcy procedure that arranges transactions to sell assets before the company appoints an administrator. This will maintain value and allow directors to continue their operations.
“It’s alarming that the proportion of companies with toxic debt across the sector is high and the debt of UK companies is increasing,” Palmer said. According to bankruptcy services, the company’s bankruptcy increased to 1,446 in September, up 100 from August, up 56% from the same month last year.
Last year, the debt of small and medium-sized enterprises surged after the pandemic forced many businesses to rely on government-backed bank debt to survive.
The UK government last year proposed guaranteeing bank loans through various support schemes, and now over £ 75 billion of debt is backed by state full or partial guarantees. This includes around £ 47bn of so-called “bounceback” loans, which provided up to £ 50,000 to SMEs struggling with relatively low paperwork.
Banks have so far found that the percentage of problematic loans in their “bounceback” portfolio is lower than the 5-10 percent that was initially of concern. But Palmer said the company has just begun to consider whether it can afford to repay. Creditors are also slow to pursue business for their money — now that the courts are reopening, the process she thinks will accelerate.
Palmer said this would include HMRC. HMRC is required to collect a year’s deferred tax at the end of other government support schemes such as temporary dismissals.
Sectors that are particularly vulnerable to toxic debt include real estate, real estate, hotels, bars and restaurants.
Brendan Clarkson, Director of National Creditors Services at Begbies Traynor, said:
Bank of England this month warning Many companies that provided emergency loans were at risk of collapse.
“The increase in debt is modest overall, but is likely to have led to an increase in the number and size of more vulnerable businesses,” he said. “Business failures are expected to increase from historically low levels as the economy recovers and government support, including restrictions on clearing orders, is lost.”
According to the BoE, the proportion of SMEs that paid more than 15% of their income to repay their debts has increased six-fold since before the pandemic.
On the other hand, many companies that used the Coronavirus Business Suspension Loan Program (CBILS) and companies that used the Coronavirus Large Enterprise Suspension Loan System (CLBILS) said they would raise interest rates because the Bank of England did not fix the repayment rate. , The cost will be high.
Small UK businesses consider insolvency to escape state Covid loans Source link Small UK businesses consider insolvency to escape state Covid loans