Soaring energy costs could impact loan approvals, firms warn

Businesses seeking large loans are warned that soaring energy costs could impact their ability to get approved.

Pipes in sectors heavily dependent on high energy consumption are likely to be the most affected.

While the 2023 budget announced that businesses will be able to claim up to €10,000 to help with their energy costs, some fear this may not be enough as they are currently facing bills in the tens of thousands. euros.

It comes as homebuyers are now finding it harder to get mortgage approvals due to the soaring cost of living.

Business owners currently applying for loan approval have told how 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 meet loan repayments.

Banks say they assess applications on a case-by-case basis.

A Bank of Ireland spokesman said when discussing a loan application with a business, “The bank takes a case-by-case approach in terms of discussing current and future energy costs depending on the ‘significance of energy costs in the context of all business cost basis’.

The permanent TSB also said it is assessing all requests on a case-by-case basis “to ensure affordability for the customer in the future”.

AIB said it is its responsibility to ensure a loan is sustainable for “our client and the bank,” but did not say whether energy costs are factored into the applications.

Although the budget offers some relief to business owners, closures have still been announced in the aftermath due to soaring costs.

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

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

The main relief given to businesses in the budget was the introduction of the Temporary Business Energy Assistance Scheme (TBESS).

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

Companies can only claim increases greater than 50% over last year. Once this threshold is exceeded, companies can claim 40% of the increased amount, with a monthly cap of €10,000.

However, companies in the hospitality and retail sectors that consume large amounts of energy believe further price increases are on the way.

Neil McDonnell, chief executive of trade group Isme, said some were now looking to reduce hours and closing during quieter times of the week.

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

“Generally, professional services aren’t going to go away because of bills, but grocery, hospitality, and manufacturing businesses are going to be under a lot of pressure because that’s a significant cost level.

“What we’re hearing is that companies are looking at shorter hours and shorter days and that shows the direction of thinking for a lot of small businesses.”

Retail Excellence, Ireland’s largest representative body for the retail sector, has welcomed the government’s response to the energy crisis with targeted aid.

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