Small firms have started making Covid-19 loan repayments but as headwinds strengthen, the pressure on cashflow is growing. As the second half of an increasingly difficult year approaches, how can companies manage the extra burden?

Rising costs put Covid-19 loan repayment back in the spotlight

After some initial warnings about the ability of small firms to afford Covid-19 loan repayments – one estimate suggests that businesses may default on £20 billion worth of loans – the issue has taken something of a back seat lately as the war in Ukraine has put energy and fuel prices firmly front and centre.

However, with rising prices squeezing already thin margins, the viability of loan repayments is being pushed back up the agenda, not least with the impending closure of the government’s headline emergency business support scheme, with will mean more small firms facing more repayments.

How this affects small business performance in the second half of the year remains to be seen. At the moment, quite understandably, there is a degree of uncertainty about what lies ahead, with fluctuating assessments and forecasts of small business attitudes and prospects.

A new report suggests that over half of SMEs expect turnover to increase in 2022 despite the ongoing challenges. This bullish outlook is in contrast to other surveys that show business optimism across large swathes of the sector taking a big hit as the market is buffeted by a range of factors.

Insolvency data point toward Covid-19 loan repayment leniency

Notably, new data on business insolvency show a 19% increase in the number of businesses in critical distress, with rising debt and soaring energy and labour costs key reasons behind the rise. Voluntary insolvencies in England and Wales reached a 60-year high in Q1.

One way in which the pressure can be eased on small businesses is for the government to take a lenient approach to Covid-19 loan repayments going forward. Such breathing room could mean the difference between continuation and collapse.

Managing loan repayments and how alternative finance can help

So how can cash-strapped small firms, which are already struggling to stay afloat as the tide of operating costs rises, afford Covid-19 loan repayments? Alternative finance can help.

In the wake of prolonged caution from traditional lenders, which is an issue that has returned during the pandemic, services such as invoice finance, asset finance and peer-to-peer lending, are proving a vital source of capital for small businesses, both for maintaining cashflow and for essential investment.

These facilities, which offer a more easily accessible and personalised approach to lending, are helping small businesses survive and target recovery and regrowth.

Furthermore, alternative lending is playing a prominent role in the government’s headline emergency support scheme, the Recovery Loan Scheme (open until the end of June 2022). Invoice finance and asset finance between £1,000 and £10 million per business are available under the initiative. This profile is helping cement the reputation of alternative finance in the business sector.

Covid-19 loan repayments and small firm finance options

It remains to be seen how the government approaches Covid-19 loan repayments in the second half of the year – the closure of the Recovery Loan Scheme has already been put back once and scheduling leniency may be unavoidable. But it shouldn’t be counted on, which is why it is vital that small businesses are aware of all the finance options available to them, including the services of alternative lenders.

To find out more about A&T Business Associates services, contact Steve Bowles on 01903 602211 or steve.bowles@atbusinessassociates.co.uk.