The value of UK business loans written off by banks almost doubled in the final quarter of 2021 as businesses struggled with inflation, rising interest rates and refinancing state-backed Covid loans.
Debt advisory firm ACP Altenburg Advisory showed that the value of these loans written off rose by 87 per cent from £190m in the third quarter to £356m in the fourth.
The firm said write-offs were subdued during the pandemic but are now increasing as businesses have struggled with rising energy prices and the impact of rising interest rates.
It added that the end of government backed lending schemes such as the coronavirus business interruption loan scheme and bounce back loan scheme has also made it more difficult for businesses to roll over or refinance loans that are maturing.
ACP Altenburg Advisory added that companies face intense uncertainty over the war in Ukraine and the lifting of restrictions on commercial landlords’ rights from the start of April.
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“With an increasing number of headwinds in the economy, businesses will need to start contingency planning around their finances and what impact increased costs and/or interest rates will have,” said Dan Barrett, partner at ACP Altenburg Advisory.
“Without government guarantees small- and medium-sized enterprises will find it harder to get bank finance and will have to look more closely at alternative finance providers.”
ACP Altenburg Advisory added that as business profits suffer from cost inflation, more will be in danger of breaching any terms based on the profitability of that business.
A breach may then lead to a lender demanding repayment before the agreed maturity date.
ACP Altenburg Advisory also warned those looking to borrow that banks are now starting to undertake more stress testing to ensure that the businesses can afford repayments under higher costs or interest rate scenarios.
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“The unstable economic climate in the UK and cloudy outlook means businesses will need to be careful when assessing their funding options,” said Barrett.
“Those looking to refinance debt or acquire new funding will need to ensure they get the right advice and correct information on their options, so they can find a funding solution that best suits their needs.”