Insolvency rates are up as companies juggle personal and business finances
Photo by Mimi Thian on Unsplash
As KBB’s editor Cec Busby put it, “…the effects of the pandemic were felt more keenly by small business owners in 2021 as Covid-19’s second wave reintroduced restrictions and lockdowns upon already struggling operations.” 2021 was a tough year for small businesses balancing personal finances and business costs. Debt made it increasingly difficult for companies to control their situation; in fact, a report by the Bank of England says that a third of UK small businesses were classified as highly indebted as of September.
Self-employed business owners, the pandemic, and government programs
The pandemic has played its part in everyone’s financial situation. Many self-employed people with small businesses and income streams noticed it a little more. Work from home orders, lockdowns, and a lack of trade affected revenue across multiple sectors. Government support came far too late for many and was deemed ineffective for keeping businesses afloat. However, it wasn’t just small businesses that went under in 2021. Numerous high street stores entered administration, as did energy companies.
Business owners left to deal with a precarious balancing act
2021 saw business owners making some very difficult decisions and potentially applying for loans just to see them through. Others would have forgone salaries, putting their personal finances at risk. Often, this would mean the dangerous step of applying for personal or business loans when government support wasn’t enough. The problem is that long-standing debt and issues of debt consolidation can affect individuals in the long term and affect prospects for 2022.
Providers of business loans will take personal finances into account, including current debts and credit scores. Some may be reluctant to lend to anyone with existing debt or a history of late payments. Then there is the impact of taxes. Any mistakes in tax returns and declarations could also have a significant effect on both personal and business circumstances in the year ahead.
At the moment, small businesses in the hospitality and travel sectors are most at risk. Many have seen cancellations in bookings where there would normally be festive gatherings and trips. Chancellor Sunak announced a package of grants up to £6,000 for pubs and restaurants to make things easier, but critics say it isn’t enough to cover losses and rising costs. For example, rising energy prices coming into effect this winter don’t just affect personal finance. Restaurants have to keep the lights on too. Also, there are concerns that nothing has been announced for the travel and tourism sector.
How are prospects for small business owners in 2022?
The next few weeks will be crucial for a lot of companies as they handle the festive period under a new threat of restrictions. While the UK is technically in lockdown, there are still warnings not to travel, attend social gatherings, and avoid the hospitality industry. Companies that are careful with personal borrowing now have a better chance of keeping lenders happy.