Banks write off more business loans as inflation hits borrowers

The value of UK business loans written off by banks almost doubled in the last quarter of 2021 as companies battle inflation, rising interest rates and the refinancing of state-backed Covid loans.

Debt consultancy ACP Altenburg Advisory showed the value of those written-off loans increased by 87%, from £190m in the third quarter to £356m in the fourth.

The company said write-offs had been subdued during the pandemic but were now increasing as businesses grappled with rising energy prices and the impact of rising interest rates.

He added that the end of government-backed loan programs, such as the coronavirus business interruption loan program and the rebound loan program, has also made it more difficult for companies to renew or refinance. maturing loans.

ACP Altenburg Advisory added that businesses face intense uncertainty over the war in Ukraine and the lifting of restrictions on commercial owners’ rights from early April.

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“With an increasing number of headwinds in the economy, companies will need to start planning their finances and the impact that rising costs and/or interest rates will have,” said Dan Barrett, Partner at ACP Altenburg Advisory.

“Without government guarantees, small and medium-sized businesses will find it harder to obtain bank financing and will need to take a closer look at alternative financing providers.”

ACP Altenburg Advisory added that as companies’ profits suffer from cost inflation, others risk breaching conditions based on that company’s profitability.

A default may then lead a lender to demand repayment before the agreed due date.

ACP Altenburg Advisory has also warned those looking to borrow that banks are now beginning to undertake more stress testing to ensure companies can afford repayments under higher cost or interest rate scenarios.

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“The unstable economic climate in the UK and the bleak outlook mean companies will need to be careful when assessing their financing options,” Barrett said.

“Those looking to refinance debt or acquire new finance will need to ensure that they receive the right advice and information about their options, so that they can find a financing solution that best suits their needs. .”

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