More borrowing is not the way out of a financial crisis, says financial expert

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Deborah Lockwood argues that the growing reliance on borrowing could do more harm than good for struggling businesses.

Ms Lockwood said businesses that depended on borrowing to survive the pandemic could be more likely to fail.

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“During the pandemic, some companies have taken on levels of borrowing that they would never have considered before, and they would not have been approved or would not have been able to secure such large amounts,” he said. said Ms Lockwood, partner at Sheffield Insolvency and Business Recovery. Graywoods specialists.

Deborah Lockwood argues that the growing reliance on borrowing could do more harm than good for struggling businesses.

“This, coupled with settlements with creditors including HMRC, is bringing businesses to the point where they are building up levels of debt where even repayment plans become unmanageable.”

She said it is companies that before the pandemic were reluctant to take on high levels of borrowing that are now particularly vulnerable.

“They saw borrowing for the first time perhaps as a way out of a cash flow crisis, but taking out loans for additional funding can be a very problematic and certainly short-term approach that had no vision of the future without worrying about underlying issues such as reduced customer demand, increased costs and other uncertainties,” she said.

“Directors should not engage in additional borrowing without having a full understanding of the company’s current financial condition and a realistic cash flow projection to justify their actions.

“Above all, they need to be aware of their current level of indebtedness and not just act carelessly and carelessly and without thinking about the consequences of their decisions.

“Such decisions can lead to asset erosion, leading to even greater costs and vulnerability in the future.”

“There are so many different ways people try to get their business out of the situation the extra borrowing has caused, but these need to be looked at very carefully and as always the best thing to do is seek advice. to a professional before committing to an arrangement that only aggravates the problem.

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