Covid debt is drowning £ 104 billion in small businesses

Don’t wave, drown: Small businesses are struggling to stay afloat, burdened with over £ 100 billion in Covid debt

Bank lending to small businesses topped £ 100 billion last year as SMEs looked for government-backed Covid credit facilities.

Overdraft requests fell, although gross lending to SMEs rose 82 percent to £ 104 billion.

By the end of 2020, around 1.5 million bounce-back loans and coronavirus loan programs for business interruptions had been approved.

And nearly a third of companies received grants last year, compared to just 2 percent in 2019.

The pandemic has hit the smallest businesses the hardest. 49 percent of sole proprietorships and self-employed people recorded a decline in sales compared to 38 percent of companies with 50 to 249 employees.

Worryingly, despite the flood of cheap government loans, a third of the small businesses surveyed in the latest British Business Bank report are expected to shrink.

Only one in five (21 percent) expected growth compared to 28 percent in the previous year.

SMEs in business services (25 percent) and manufacturing (23 percent) were the most optimistic about their growth prospects for the next year, while companies in construction and other service sectors were the least optimistic (both 17 percent).

Fortunately, small businesses have amassed a war chest due to the level of government support and lower operating costs. Deposits have grown 20 percent since the pandemic began, to a record £ 252 billion.

Geared towards growth

This year’s Small Business Finance Markets survey predicts that financing demand will remain strong throughout 2021 as companies seek to move away from the pandemic and move towards growth, adapting to life outside the EU, productivity to improve and move on to a new net-zero economy.

Mike Cherry, chairman of the Federation of Small Businesses, pointed out that four in ten small businesses that have recently gained access to finance rate their debts as “unmanageable”.

Many of these companies are in the hardest-hit industries, including events, travel, and night pub businesses that took out loans last summer “hoping we’ll be out of the woods by Christmas”.

Cherry reiterated that more than half of those with Covid-19 facilities see a student loan approach – where repayments are not made until a business is profitable again – as a helpful avenue.

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