Rising interest rates to drive up the cost of Covid emergency loans

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Thousands of businesses that have used the Covid-19 emergency loan program face the specter of higher repayments once the Bank of England raises interest rates, which will put more pressure on the finances of businesses in a context of increasing inflation and labor shortages.

Only half of the lenders who have offered £ 26.4 billion in loans through the Coronavirus Business Interruption Loan Program (CBILS) have done so at a fixed interest rate that would protect customers from a rising rates. CBILS loans have been authorized up to £ 5 million each.

The markets are now anticipating a 50% probability of a price increase before the end of the year.

Roger Barker of the Institute of Directors said any hike could have a “significant impact” and rekindle concerns about corporate debt – a big source of anxiety at the start of the pandemic up to 0.1% in rates interest, then a rebound in the economy helped quell those fears. But sentiment is deteriorating again amid supply chain issues, inflation and the prospect of higher national insurance.

Profit warnings for listed companies are also on the rise, according to accounting firm EY. There were 51 in the third quarter, up from 19 in the previous three months.

“We have forgotten the risks that corporate debt could pose to the economic recovery. We assumed the economy was going to move forward, stuck at low interest rates, ”Barker said.

Business groups are expected to urge Rishi Sunak to avoid increasing the burden on businesses at a meeting tomorrow, nine days before his fall budget.

CBILS was aimed at small businesses with a turnover of less than £ 45million and was interest-free for the first 12 months. At the end of the mechanism at the end of March, nearly 110,000 loans had been granted. The government provides an 80 percent guarantee to the bank granting the loans.

According to the British Business Bank, which oversaw the emergency lending programs, 51% of the 116 CBILS approved lenders offered only fixed rate loans, 32% a combination of fixed and variable interest rates and 17% only loans. variable rates. Lenders under CBILS were allowed to set their own rates, as long as they were below 14.99 percent.

The Federation of Small Businesses urged lenders to be cautious about the rate hike. “Thousands of small businesses are already under pressure as they slowly recover from the pandemic,” said Mike Cherry, its president. The British Business Bank said: “The terms offered, including interest rates and whether the interest was fixed or variable, were. . . subject to agreement between the lender and the borrower. We would expect lenders to treat their customers fairly.


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