Government loans won’t save ‘zombie’ travel businesses
Government loans won’t save ‘zombie’ travel businesses

The emergency government loan scheme will save many businesses but the pandemic will kill off “zombie” firms that are not profitable, a Travel Weekly webcast was told this week.

Chris Photi, senior partner at accountancy firm White Hart Associates, said travel, as a sector, is eligible for the scheme, which is offering loans interest free for up to a year.

These are available for UK firms with turnover of up to £45 million and the government is securing up to 80% of the loan.

But Photi warned the terms being offered by banks do place a personal risk on the business owner and they will not be offered to ailing companies.

“The coronavirus business interruption loan scheme is something that many businesses are looking to take advantage of.

“But perhaps it is not as attractive as the chancellor might have you believe because banks are still looking at their own requirements to secure their own position.

“Even though the government is securing 80% of the loan, it does not come without risk for owner entrepreneur businesses.

“Two of my smaller clients have got terms under this scheme and in both cases they were required to give personal guarantees, which isn’t ideal and is not something available for larger entities.

“The feedback I am getting from the banks is there is a willingness to support the travel industry, but the willingness is to support those businesses that were viable and doing well prior to this crisis.

“If you had a business that was ailing, not going anywhere, zombie-like and making losses you are not going to get any hope from this scheme.

“But if you had a vibrant, successful business that is going through difficulties because of this crisis the banks are looking as though they are going to offer support.

“There’s no interest to pay for an initial 12 months, and no set up charges but unfortunately there’s no such thing as a free lunch.

“You’ve got to repay this at some stage and banks are unlikely to be generous with interest rates after that first year.”

Will Waggott, former Thomas Cook, Tui and Airtours boss, echoed Photi.

“These loans aren’t free. If you are making losses all you are doing is financing those losses and you are still going to have to pay the load back.

“The key is to get the cost base of your business as low as you possibly can and use as little of those loans as you possibly can. I would take the loan, I’d just try not to use it.

Waggott added that “lifestyle” businesses which are not returning a profit will not be approved for a loan.

“There are many small to medium sized businesses that aren’t going to get these loans because they are not making enough money, so it’s still difficult to get a loan for many businesses,” he said.