It’s been a difficult year universally for businesses from all sectors, with ongoing lockdown restrictions preventing many from fully opening or trading normally. On a consumer level, the same is being felt with many people working on a reduced income, furloughed or unemployed, meaning less household income to spend. Now with positivity ahead with vaccination rollouts across the globe, businesses and consumers are remaining confident with the future, so how have many combatted financial loss up to this point?
Alternative Finance Options
With many lenders feeling the economic effects of COVID-19, this led to many tightening criteria to avoid risky lending, leaving many people with more difficulty applying for credit. For those who are self-employed or currently furloughed, this meant seeking alternative options when they needed money quickly. Lenders of payday loans online were still able to help in a financial emergency, providing short term options when people needed them most. Whilst people experienced reduced income, the unexpected financial emergencies in life could still crop up, leaving many people with fewer options to help. Many banks and building societies looked to raise their credit scoring criteria to protect themselves from the economic shock, choosing to lend only to those with higher credit ratings. This left a gap for those with poor credit histories seeking financial help from traditional lenders, leading to finding online alternatives.
With financial losses hitting consumers and businesses hard, the Bank of England (BoE) stepped in to help support them. One measure included cutting the base rate of interest to 0.1%, its lowest ever level, helping to make loans cheaper for both households and businesses. This measure is still in place as of April 2021 and meant that anyone looking to borrow money could also take advantage of much less interest being charged on repayments. One of the biggest changes introduced to help combat financial loss for businesses and consumers was the opening of coronavirus loan schemes, providing financial support whilst restrictions continued. The purpose was to help stimulate businesses by offering loans to cover losses experienced. With many of the schemes now closed at the end of March 2021, a new Recovery Loan Scheme (RLS) has been introduced on 6 April. If a business has been affected by the economic impact of COVID-19, finance up to £10 million is available per business and can be applied for through lenders in the form of loans, overdrafts, asset finance and invoice finance.
To help households who have seen financial loss, payment holidays were introduced to allow consumers with existing borrowing to freeze repayments. Those with mortgages, usually the largest essential bill for a household to pay, were able to contact the lender and request a payment holiday. Whilst the timeframe to apply for a payment holiday ended on 31st March, over the last year it enabled households to freeze payments for up to 6 months, alleviate the financial burden left for those on reduced incomes, furloughed or even unemployed. Many people who applied for payment holidays in 2020 have now begun repaying and so far, mortgage arrears rates have been low, providing positivity going forward.
With the effects of COVID-19 still being felt by consumers and businesses, the financial help that has been available over the last year has kept them going. The hope now is with a roadmap away from the harshest restrictions that economic recovery can continue.