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Soaring energy costs may impact loan approval, businesses warned

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Those in sectors heavily reliant on high energy usage are likely to be most impacted. Photo: Erwin Wodicka

Those in sectors heavily reliant on high energy usage are likely to be most impacted. Photo: Erwin Wodicka

Isme chief executive Neil McDonnell said some business are now closing during quieter periods in the week.

Isme chief executive Neil McDonnell said some business are now closing during quieter periods in the week.

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Those in sectors heavily reliant on high energy usage are likely to be most impacted. Photo: Erwin Wodicka

Businesses seeking large loans are being warned soaring energy costs may impact their ability to get approval.

Those in sectors heavily reliant on high energy usage are likely to be most impacted.

While Budget 2023 announced businesses will be able to claim a payment of up to €10,000 to help them with energy costs, some fear that this may not be enough as they are currently dealing with bills worth tens of thousands of euro.

It comes as homebuyers are now finding it harder to get mortgage approval due to the surge in the cost of living.

Business owners currently seeking loan approval told independent.iehow they have been asked to provide details of their energy costs as part of the risk assessment process.

Rising costs mean lenders are now stress-testing borrowers to assess their ability to keep up with loan repayments.

Banks say they are assessing applications on a case-by-case basis.

A Bank of Ireland spokesperson said when discussing a lending application with a business, “the bank takes a case-by-case approach in terms of discussing current and future energy costs depending on the materiality of energy costs in the context of the businesses’ overall cost base”.

Permanent TSB also said it assesses all applications on a case-by-case basis “to ensure affordability for the customer into the future”.

AIB said it has a responsibility to ensure a loan is sustainable for “our customer and the bank” but did not clarify if energy costs are being considered in applications.

Despite the Budget providing some relief to business owners, closures have still been announced in the aftermath due to spiralling costs.

The owners of Cistín Eile, a popular restaurant in Wexford town, said it was no longer viable to keep the business going after 12 years.

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Chef Warren Gillen said: “We have decided, with a heavy heart, to close due to the crushing energy costs, ancillary product costs and a shortage of trained, motivated personnel, to name but a few reasons.”

The main relief provided to businesses in the Budget was the introduction of the Temporary Business Energy Support Scheme (TBESS).

The scheme, which will be operated by the Revenue Commissioners, will compare the average unit price for a business’s energy utility in 2022 with the average unit price in the same period of last year.

Companies can only claim for increases above 50pc of last year. Once that threshold is passed, businesses can claim for 40pc of the increased amount, with a monthly cap of €10,000 applying.

However, businesses in the hospitality and retail sectors which use high amounts of energy believe further price hikes are down the line.

Neil McDonnell, chief executive of business group Isme, said some are now looking to reduce hours and are closing during quieter periods in the week.

“Businesses will fall roughly into three brackets. There will be those who can absorb the costs, there will be punters who can pass on the costs and then there will be those who cannot pass on the costs,” he said.

“Typically professional services are not going to go under because of bills, but grocery, hospitality and manufacturing businesses are going to be under serious pressure as that is a significant level of cost involved.

“What we’re hearing is that businesses are looking at shortening hours and reducing days and that shows the direction of thought of a lot of small businesses.”

Retail Excellence, the largest representative body for the retail industry in Ireland, welcomed the Government intervention in the energy crisis with targeted supports.

Managing director Duncan Graham said that while many people will have more money in their pockets to spend, “it remains to be seen whether this will be sufficient for many businesses who have been crippled by rising costs”.


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