Corporate Debt – don’t leave yourself exposed
There is no doubt that we are living in unprecedented times. Over six months ago the country was put into lockdown and to this day the thought of returning to what once seemed ‘a normal life’ still seems some way off. We now find ourselves dealing with local lockdowns, track and trace, wearing of masks in public places and other measures introduced by the government in an attempt to deal with and contain this virus.
From a business point of view many sectors find themselves having to navigate through uncharted territory and immersed in long term uncertainty.
The government announced various measures to support businesses facing difficulties, two of which are the Coronavirus Business Interruption Loan Scheme (CBILS) and the Bounce Back Loan Scheme (BBLS). The schemes aim to support long-term viable businesses who may need to respond to cashflow pressures by seeking additional finance.
There is no doubt that these schemes will have provided a crucial financial safety net for many firms, but they do also raise questions about how business owners should protect their debt.
This pandemic will have forced many business owners to think even more carefully about how to protect their biggest assets, which is themselves and their key people. But for many business owners they do not realise that their debt does not die with them and that any loans will have to be repaid if they do pass-away. Furthermore, how would this debt be serviced in the event of long-term sickness or incapacity?
Remember, the borrower always remains 100% liable for the debt. You’ll be responsible for repayment of 100% of the CBILS facility, not just the 20% outside the coverage of the government’s guarantee and while no personal guarantees are required with the BBLS, the responsibility for paying back the loan rests with the business. Where defaults occur, lenders will follow their standard commercial recovery procedures, including the realisation of security (where appropriate), before making a claim against the government’s guarantee for any shortfall.
Furthermore, these coronavirus-related loans could well compound the existing issue of corporate debt, some of which may well be subject to personal guarantees, namely, your biggest asset, your home. Now is an ideal time to sit down with your financial planner and look at ways to insure and protect your business and family should the worst happen.
At MHA Moore and Smalley, we specialise in formulating and implementing comprehensive protection solutions that will help mitigate the risks a business is faced with. Whilst cost is often an objection, in reality, a robust solution can be put in place for a fraction of most business’ turnover or profit. What business owners should be asking themselves is what is the cost of not having something in place – not just on their business but also their families.