Business credit holidays: a lifeline or a postponement of problems

In conditions of economic instability, sanctions pressure, or sudden crises, small and medium-sized businesses find themselves at increased risk. Revenue is falling, but obligations to banks are not disappearing. It is in this situation that a tool that everyone has heard about, but not everyone fully understands, can come to the rescue — business credit holidays.

What are credit holidays?

Credit holidays are an opportunity provided by law or an agreement with a bank for a borrower (in this case, a company or individual entrepreneur) to temporarily suspend or reduce loan payments. It is important to understand: this is not debt forgiveness, but only a postponement. Interest for the vacation period usually continues to accrue, and the total amount of the loan overpayment will increase.

Who gets credit holidays?

The right to credit holidays is not automatic and is granted subject to strict conditions. As a rule, entrepreneurs and companies who find themselves in a difficult financial situation due to circumstances that they could not influence can rely on them.

The main criteria:

1. A sharp deterioration in the financial situation. Revenue should fall significantly (for example, by 30% or more compared to the previous period).

2.⁠ ⁠A range of reasons. Vacations are often tied to specific crises. For example, in 2020-2022, they were available to businesses affected by the COVID-19 pandemic, and now to companies that have been sanctioned or faced a sharp increase in costs due to the macroeconomic situation.

3. There is no overdue debt at the time of application submission.

4. Total outstanding loans. There are limits. For example, the program can only apply to loans up to 1 billion rubles.

5. Number of employees. Programs are often targeted at small and medium-sized businesses (SMEs).

What are the forms of credit holidays?

Banks can offer different debt restructuring options. The main ones are:

1. Deferral of the principal debt (annuity holidays). The most popular option. For a certain period (usually up to 6 months), the business pays only interest on the loan, and does not repay the body of the debt. This significantly reduces the monthly workload.

2. Full payment deferral. A rarer option is when for a certain period (for example, 3 months) the company does not pay either the principal amount of the debt or interest. In this case, the interest is capitalized (added to the amount of debt), which leads to a significant increase in overpayments in the future.

3. Extension of the loan term. The Bank extends the term of the loan agreement, which reduces the monthly payment.

4.⁠ ⁠Credit holidays in the form of interest rate reduction. A temporary reduction in the rate to ease the financial burden.

The pros and cons of credit holidays

Advantages: · Preservation of liquidity: The main advantage. Funds are released that can be used for urgent needs: salaries, rent, and the purchase of critical materials. · Rescue from bankruptcy: It helps to survive the acute phase of the crisis without default on obligations. · Time to adapt: Provides a business with time to adjust its business model, find new markets, or optimize costs.

Disadvantages and risks:

· Increase in the total cost of the loan: Due to the accrual of interest on the remaining debt, you will eventually pay the bank more.

· Legal and time costs: The registration process requires the collection of documents and negotiations with the bank.

· Risk of rejection: The Bank is not obligated to satisfy your application. The decision is made based on an analysis of the financial condition of the company. The illusion of solving a problem: Vacations are a pause, not an exit. If the business model is not viable, vacations will only delay the collapse.

How do I apply for a credit vacation? Step-by-step algorithm

1. Analysis of the situation. Clearly assess how much your financial situation has deteriorated and whether you meet the criteria of the program (for example, by falling revenue).

2. Study of the contract and legislation. See if there is a restructuring clause in your loan agreement. Study current government support programs (for example, resolutions of the Government of the Russian Federation).

3. Contacting the bank. Don't wait for the delay! Contact your manager as early as possible and report any difficulties.

4.⁠ ⁠Submission of an application and a package of documents. The Bank will request a justification for your request. The standard package of documents includes:

· Application for credit holidays.

· Accounting statements, tax returns.

· Documents confirming the drop in revenue.

· Detailed explanation of the reasons for the difficult situation.

· A new business plan or a plan to restore solvency.

5. Conclusion of an additional agreement. If the bank approves your application, all new conditions (vacation period, payment procedure) will be fixed in the supplementary agreement to the loan agreement. Do not sign anything without examining it carefully!

Alternatives to credit holidays

Consider other options before taking a break.:

· Refinancing a loan with another bank on more favorable terms.

· Receiving government support: preferential loans, subsidies, guarantees.

· Negotiations with counterparties on deferred payments (accounts receivable and payable).

Conclusion

Credit holidays are a powerful but double—edged tool. They will not solve the systemic problems of a business, but they can give it an invaluable resource — time. The key to success is timely contacting the bank, an honest assessment of your capabilities and a clear plan to overcome the crisis. Use this pause not to rest, but to take decisive action to save and restart your business.