Covid-19 Drives Record Levels of Borrowing for UK SMEs

High rise bank buildings

A new report by the British Business Bank has revealed the full extent of the Covid-19 pandemic on British businesses in 2020, with almost half (45%) of SMEs applying for external financial support, compared to just 13% in 2019.

The Small Business Finance Markets report also revealed that gross bank lending to SMEs up 82% to £104bn, almost 70% of which was from the two main government-backed coronavirus lending schemes.

Around 1.5 million Bounce Back Loan and Coronavirus Business Interruption Loan Scheme Covid-19 debt facilities had been approved by the end of 2020.

Encouragingly however, a significant proportion of finance facilities taken out because of Covid-19 remained unspent by Q3 2020. Only 23% of SMEs had spent all of their facilities, and 19% reported they had not spent any.

Looking ahead, the report suggests that there could be further significant demand for borrowing in 2021, with banks currently looking to have sufficient capital for further lending.

Record cash balances on the one hand and increasing debt levels on the other suggest a sizeable number of smaller businesses will be in a position to borrow further in 2021 and a sizeable number likely to struggle with debt repayments. High levels of debt could result in a drag on viable applications for finance in 2021.

The impact to date has been significant, with 33% of smaller businesses expected to shrink this year, and 4% to sell or close.

In the Financial Times, Catherine Lewis La Torre, chief executive of the British Business Bank, said she hoped a stronger-than-expected economic recovery would put many businesses in a better position:

There is a scenario where a big proportion of lending was not necessary at the end of the day. But there will be businesses that struggle to pay.

Room for Growth?

Is it possible that the impact of Covid-19 could actually force some positive change?

Michelle Ovens MBE, founder of Small Business Britain, seems to suggest so, finding room among the numbers to look at the ways in which Covid-19 may change how small businesses innovate:

Covid-19 has managed to do what years of intervention from government, business organisations, business schools and more could not: create a more productive business landscape. We knew what was needed but getting small businesses to shift in this monumental way took a crisis.

“These stronger businesses will be the ones that grow employment, that foster innovation, that create exciting, positive opportunities for communities and the planet: the great hope for the next decade.”

Grant Funding

Perhaps unsurprisingly, nearly 33% of businesses accessed grant funding last year, compared to just 2% in 2019. This is a marked increase and one which could indicate a growing appetite to seek alternative forms of funding, even outside of a crisis situation.

We’ve long been advocates for grant funding for businesses, particularly from the UK Government.

With no need to give up equity and no repayments, grants could offer a valuable lifeline to the UK’s businesses, not just during the pandemic, but beyond.

Curious to Know What Grants You Could Get?

If you want a no-obligation, honest-to-goodness conversation about what schemes you could be eligible for, simply book a call with our expert team of advisors.

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