The APPG on Fair Business Banking is calling on The FCA and UK lenders to introduce and proactively offer full 6-month payment holidays on commercial loans for business customers affected by the Covid-19 crisis.
Since March, customers with regulated residential mortgages who have been impacted by the pandemic have been able to obtain 3-month, full payment holidays with no adverse effect on their credit rating. Only this week it was announced that payment holidays could be extended until the end of October if necessary.
Currently lenders are offering holidays on the capital element, but this is usually a relatively small part of the monthly payment with interest being the much greater element. The current offer is only made available on request. Lenders should step up support and proactively offer full payment holidays, i.e. interest as well as capital, to impacted business customers. The FCA guidance states that lenders to business customers should also act in a manner consistent with their guidance for regulated products, so there is no reason that this cannot be implemented.
Taking a full mortgage holiday is not a cheap solution as interest will still accrue on the loan. However, for businesses which have been ineligible for the other types of Government assistance or for whom it was insufficient, it is an option which could make all the difference.
The FCA has explained to the APPG that their guidance was designed primarily to mitigate the potential for a shock to household incomes for sole traders and unincorporated partnerships. We are concerned that many of these people are being denied this opportunity because they have been refused a payment holiday or they are unaware that they are eligible for one.
There is also no reason why the FCA guidance cannot also apply to limited companies. Directors of small companies who are paid through dividends have already fallen through the cracks between current Government schemes, and the APPG believes they are also eligible, or should be eligible, for full payment holidays.
The FCA guidance applies, ‘if an authorised person carries on activity in relation to an unregulated agreement to provide credit which is secured on land’. This includes lending to hotels, pubs and restaurants, tourist attractions, sports facilities, retailers, doctors/dentists’/vets, landlords with residential portfolio lending, commercial property landlords, farmers and many others. Care homes also fall into this category. These businesses need maximum forbearance in these times to enable them to survive into the post-coronavirus economy.
The link to the FCA’s guidance on Mortgages and coronavirus: updated draft guidance for firms Here
