Debt the big headache for hospitality

The UK government's £50k bounce back loan scheme may have saved many businesses but will restrict bounce back recovery.

The scheme is due to start taking loan repayments, 12 months after the loan was issued. For some, payments will start in April. The loans, while a life line in the early days of the pandemic, will now hamper business. Some business have borrowed significantly more. For example Xavier Rousset MS, owner of Blandford Comptoir, Cabotte and Black Book, borrowed £50,000 for each of his 5 restaurants, a total debt of £250,000. It will only be manageable if we can trade properly in the next few months and years Rousset said to Harpers News.

According to Luke Davis, CEO of IW Capital, the rising debt that has resulted from loans that will only provide a short-term solution. Inevitably, this will result in an increase in overheads and could lead to the “demise of a lot of businesses”. The debt they have accumulated is not just from government backed loans, as many would have also taken on traditional loans or asset finance and do everything they can to keep their business afloat, he said.

While first payments are due, businesses still struggling have a number of payment options once the initial 12 month interest free period has expired.

These include:
•Extend the term of your loan to 10 years
•Move to interest-only repayments for a period of 6 months (you can use this option up to 3 times)
•Pause your repayments for a period of 6 months (you can use this option once)