Record SME borrowing data underscores Covid’s toll on UK businesses

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Almost half of UK small and medium-sized businesses have requested financial support in 2020, more than three times the level of the previous year, underscoring the toll the coronavirus pandemic has taken on UK businesses.

An annual report on SME finance from the British Business Bank (BBB) ​​found that 43% of these companies received external financing last year, up from just 13% in 2019. The financing included loans from emergency and grants made available by the government. to businesses during the pandemic.

The annual Small Business Finance Markets report, released on Wednesday, said borrowing hit record highs in 2020, with gross bank lending increasing 82% year-on-year to £ 104 billion. Almost 70% of that came from the two main government-backed coronavirus loan programs.

According to the study, a quarter of the UK’s 6 million SMEs, defined as companies with fewer than 250 workers, were the source of the additional borrowing. Last year’s record borrowing brought total SME bank debt outstanding to £ 213bn, from £ 168bn the year before.

The report also found that bank deposits had increased by a fifth to a record £ 252 billion, illustrating that many companies had taken the opportunity to use the low-interest programs backed by the government to borrow cheaply and act as a buffer given the uncertain outlook for the economy. This was underscored by a drop in both overdraft and credit card debt.

The number of SMEs accessing grants increased from 2% in 2019 to 31% last year, according to the study.

A survey released alongside the annual report found that a third of SMEs expected a contraction in the next 12 months, with the BBB warning that “many sole proprietorships” would struggle to repay their debts.

The poll found that 37% of hotel companies said they did not expect to be able to repay the loan, reflecting how badly the industry has been hit by successive lockdowns. The Bank of England warned earlier this year that half of the money loaned through bounce loans could be lost.

SMEs have had access to one of the two main coronavirus loan programs since the first foreclosure in March 2020, which come with state-backed guarantees.

More than 1.4 million small businesses have borrowed nearly £ 46 billion under the so-called rebound program, which offers loans of up to £ 50,000, or a quarter of turnover, according to the smaller of the two, and is fully guaranteed by the state.

Some 92,500 midsize businesses have borrowed £ 22 billion under the coronavirus business disruption loan program, which is backed by an 80% government guarantee.

The BBB report showed that among companies accessing one of the two main loan programs, 59% took out loans equivalent to more than a fifth of their turnover.

Catherine Lewis La Torre, managing director of the British Business Bank, said she could not predict repayment rates on government guaranteed loans before the first installments were due in May.

She hoped that a stronger than expected economic recovery would put many companies in a better position. “There is a scenario where a lot of the loans were not needed at the end of the day. But there will be companies that find it difficult to pay.

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She said the government’s decision in February to extend repayment terms from six to 10 years “made a huge difference” to many companies.

Last year was also a record for government-backed start-up loans used by people to start businesses, according to the BBB’s annual report. Total funding used in 2020 reached £ 126million, up 41% from the previous year.

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