The COVID-19 pandemic has hampered many small businesses from being able to trade. This has led to SMEs wondering how will they pay for all the debt they have? With the mention of payment holidays, many small businesses breathed a sigh of relief but before you jump at this opportunity there are five questions to think about.
What is a payment holiday?
Much like a holiday, a payment holiday is a break from paying back the money you owe but when the holiday ends you will still need to pay the debt amount back that you owe. This holiday will not decrease the amount of money you owe your lenders. It could increase the number of months you will need to pay back the loan and the interest on your loan may also increase.
Should you take a payment holiday?
If you are not able to pay your lenders due to the current COVID-19 pandemic, then you should consider taking a payment holiday if the lenders are offering one. If they are not offering one then you should speak to your suppliers and other lenders and see what solution you can come up with where you both benefit from the situation. Some lenders may only be offering payment holidays to those customers who are in good standing with them.
Who is offering payment holidays?
In South Africa, the four major banks are offering payment holidays and SARS has offered companies some tax breaks. Here are links to the payment holidays offered by different lenders
Could I use my credit insurance to pay off my debt?
Many loans come with credit insurance and this could be an opportunity to see if you could use your credit insurance to assist with paying your loan. You should read the terms and conditions of your credit insurance and contact your credit insurer or financial adviser and see if this is an option for you.
How will my credit score be affected?
If you take a payment holiday it may affect your credit score if you don’t advise the rating agency that you have made an arrangement with your lender to take a payment holiday. Therefore it is important to advise the credit rating agency when you had a payment holiday so that it won’t affect your credit score.
We hope that this has shed some light on payment holidays. If you have any further questions, we recommend you contact your financial adviser or lending agency and speak to them directly to see how you can manage your cash flow during this difficult time.
Keep strong and never give up.
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