In the past few months, we are starting to hear about more SME’s and micro businesses utilising the Government’s Small Company Administrative Rescue Process (SCARP) in a bid to keep their business alive. After battling through the perfect storm of Brexit and the Pandemic, many business owners are now trying to navigate their way through escalating supply chain issues, rising inflation and steep interest hikes. With overall business costs mounting, this is taking more funds away from the day to day working capital that is already needed to pay off arrears accrued during the Pandemic.
As a result, we are seeing businesses that are fundamentally sound running into serious financial problems due to legacy debt. Not surprisingly, it is business owners in the hospitality and retail industries that are currently finding it the most difficult, mainly due to a combination of legacy debt and the fact that discretionary consumer spending is down.
However, too often, companies in financial difficulty fail without fully exploring restructuring options such as examinership, and the more recently enacted SCARP process for small and micro companies. Both options offer a real lifeline to a business that is viable, but insolvent.
What is SCARP?
SCARP is a formal restructuring option introduced by the Government in late 2021 to assist SMEs that are viable, but need to be restructured to avoid liquidation. These companies must be unable or likely to be unable to pay their debts and have not used the examinership process (or SCARP) in the previous five years. The process allows the company to restructure its balance sheet, write off a proportion of its debts and, ultimately, survive. It also helps creditors to get a better outcome than they would under a liquidation. It includes all debts, so is perfect for dealing with Revenue or rate arrears, as well as redundancy or staff reorganisations. As a low-cost alternative to examinership, it is designed to be quicker, with less legal oversight.
The process is aimed at companies that meet two of the following three criteria:
- Turnover does not exceed €12m
- Balance sheet does not exceed €6m
- There are less than 50 employees
How does Invoice Finance assist during the SCARP process?
Bibby Financial Services Ireland is partnered with Baker Tilly to support the restructuring of SMEs through Examinership and SCARP. In many cases, these businesses have a lot of working capital tied up in outstanding invoices. By using an Invoice Discounting facility, business owners can gain immediate access to money outstanding from their unpaid invoices, helping them to access income they have already earned but not yet received. This cash is then used to pay their bills.
With unaffordable historical debts no longer a noose around the business, it is then able to continue trading. Once the business resumes operations, the Invoice Finance facility can be extended to continue freeing up working capital to support the company’s growth strategy. Unlike a loan or overdraft, Invoice Finance does not involve ongoing monthly repayments. This revolving credit option means that once invoices are paid, the business can just continue the cycle – upload the invoices, draw down, use the funds and simply repeat. This offers businesses the option of using their own funds to improve day to day or seasonal cashflow fluctuations or finance bigger growth plans without having to borrow any money – leaving them debt free. With a strong financial process in place, the company is then poised to go from strength to strength.
Business owners need all the help they can get at this challenging time and, for many, the SCARP process could be the lifeline they need to keep their business alive.
In partnership with Baker Tilly