More Lending Problems for SME’s?


Most small business owners could be forgiven for having missed the Finance Act 2020 however, there is a provision within it that could make lending that bit more difficult for SME’s.

The Act states that HMRC will become a preferential creditor for insolvencies that take place after 1 December 2020. Previously only employees and the Financial Services Compensation Scheme had preferential status. Now HMRC will be a preferential creditor for VAT, PAYE, NIC, and CIS but not for Corporation Tax.

Many will look at this and conclude that this only applies if a business goes into liquidation or administration. To a certain extent this is true but shrewd business owners are now looking at how the lenders will react to being pushed down the list of creditors.

Lenders may now look at the tax position of a borrower and may require information on any changes in their tax position. Overall some lenders may conclude that lending risk has increased and will require additional security before considering lending and / or increase the costs associated with the lending. They may also request ongoing information about the trading and tax position of the business.

For many small businesses this could mean even more personal guarantees or at least an increase in reporting.

For those businesses that are looking to source new or extra lending it will now be especially important to consider the finer detail of any lending documentation, to ensure that moving forward, they remain within its terms.

Business owners or lenders seeking legal advice on funding should contact Pictons for help.

0800 302 9448