Connect with us

Hi, what are you looking for?

Investing

Small businesses urged to heed the warning signs of insolvency

Debt collection

The Office of Budget Responsibility has predicted a default rate of 40.4% on BBL and CBIL finance to SMEs, with £27.2billion of loans expected to be written off.

Purbeck Personal Guarantee Insurance, provider of the UK’s only Personal Guarantee Insurance to SME business owners and directors, is urging the 59% of businesses revealed to have borrowed more than 20% of their turnover, to calculate their repayments and heed the insolvency warning signs. Purbeck has calculated that interest on the average Personal Guarantee backed CBIL loan of £766,000 could amount to £144k at 7% interest to £327k at 15% interest.

Todd Davison, MD of Purbeck Personal Guarantee Insurance said: “A company is deemed insolvent when it can’t pay bills when they become due, or it has more liabilities than assets on its balance sheet. With some businesses seeing sales driven down by as much as 50% during the pandemic, reports suggests the number of insolvencies could potentially be even higher than at the height of the global financial crisis back in 2009. It is critical that businesses look ahead at the loan repayments they will need to make, watch for the insolvency warning signs and seek expert advice on next steps such as turnaround finance; refinancing; Time to Pay; Company Voluntary Arrangements or Administration.”

The Warning signs of insolvency:

Cash flow problems

All businesses will experience a squeeze in cash from time to time. But, if the problem is frequent or constant, then you’ve got an underlying issue that needs to be resolved.

High-interest payments

– If, when trying to access a business loan, the interest rates are sky-high – or lenders are insisting on higher levels of personal guarantee – this indicates that they are treating your company with caution.

Defaulting on bills

This is not only bad for your relationships with suppliers and your reputation, it’s also likely to lead to your creditors taking action against you.

Late payments

One of the most obvious early signs of insolvency is when you’re continually late in settling up with your creditors, or in collecting payments from your debtors.

Falling Margins

High sales don’t necessarily mean business is booming. If costs are high, too, you could soon end up in the red. Always look at your bottom line, not just your turnover.

What are your options?

If you recognise that your own company is showing one or more of the early signs of insolvency, there are several ways you might be able to get your business back on track.

Turnaround finance or capital is a short-term option for companies that are in financial distress and perhaps even facing the threat of legal action from creditors.

Refinancing your business or capital release could be a valid option if you have cash flow issues and your assets are tied up, for example in property.

Informal Creditors Arrangement or Time to Pay (TTP) involves the negotiation of verbal agreements with creditors for more manageable repayment terms for outstanding debts.

Company Voluntary Arrangements are an option if your company is insolvent but could be viable in the future. They involve you renegotiating the terms of your debt with your creditors, then paying them back in one recurring monthly payment over an extended period.

Administration entails handing temporary control of your company to an insolvency practitioner, who will settle your debts and could restructure your business.

Todd Davison adds: “Sadly, if a business goes beyond the point of rescue, it may need to be placed into liquidation. A director can initiate the process using a Creditors’ Voluntary Liquidation (CVL). An insolvency practitioner will be appointed to identify and value assets belonging to the businesses, which are then sold and the proceeds distributed to creditors.

“In the case of a company becoming insolvent, if a debt that’s been secured by a personal guarantee is not repaid in full, the creditor can then pursue the director(s) who signed the guarantee personally for the remainder of the debt.

“The best option for dealing with a personal guarantee, should it be enforced in line with the law, is to have pre-emptively taken out personal guarantee insurance when securing finance or a loan for the company. With personal guarantee insurance, up to 80% of the risk is covered, so a business owner or director is personally protected as they plan the future funding and growth of their business.”

Read more:
Small businesses urged to heed the warning signs of insolvency

Click to comment

Leave a Reply

Your email address will not be published. Required fields are marked *

Get the daily email that makes reading the news actually enjoyable. Stay informed and entertained, for free.
Your information is secure and your privacy is protected. By opting in you agree to receive emails from us. Remember that you can opt-out any time, we hate spam too!

Latest

Investing

Lowering VAT charges on fuel may be politically attractive but is not good news for those who will struggle the most, say leading tax...

Investing

An estimated 3 per cent of the workforce was signed off in late December and a fifth of businesses reported increased cancellations amid the...

Investing

Mark Zuckerberg could be forced to pay most British Facebook users about £50 each if a landmark legal action alleging that the site abused...

Investing

France has reopened its borders to British tourists after ministers in Paris eased restrictions on non-essential travel. From this morning, Britons travelling to the...

Investing

People struck down with the Omicron variant of the coronavirus are buying so much paracetamol that supplies are running low in many shops. Official...

Investing

Covid Passports are to be abandoned within days after Sajid Javid effectively killed off the policy. The health secretary has concluded that Covid-19 certification...

You May Also Like

Investing

Having a good Instagram marketing agency to back up your Instagram account is an absolute must going into the new year. With competition stronger...

Economy

Ivermectin, an existing drug against parasites including head lice, has had a checkered history when it comes to treating COVID-19. The bulk of studies...

Investing

Insomnia is the most common sleep disorder in the global population. Therefore, it is a problem that many people suffer or have suffered throughout...

Investing

As a traditionally rigid insurance industry becomes bogged down by antiquated processes and operations, a handful of industry leaders are seeking to shake things...

Disclaimer: SmartRetirementReport.com, its managers, its employees, and assigns (collectively "The Company") do not make any guarantee or warranty about what is advertised above. Information provided by this website is for research purposes only and should not be considered as personalized financial advice. The Company is not affiliated with, nor does it receive compensation from, any specific security. The Company is not registered or licensed by any governing body in any jurisdiction to give investing advice or provide investment recommendation. Any investments recommended here should be taken into consideration only after consulting with your investment advisor and after reviewing the prospectus or financial statements of the company.

Copyright © 2021 SmartRetirementReport. All Rights Reserved.