There are likely to be a sizable number of small to medium-sized enterprises across the UK struggling to pay off debts they’ve taken on in recent months.
That’s the view of experts at the British Business Bank (BBB), which has released data showing that SMEs applied for loans at an unprecedented rate last year as the Covid-19 crisis caused havoc across the economy.
Close to half (45 per cent) of all UK-based SMEs, meaning businesses with 250 or fewer employees, applied for external financial support in 2020, which in 89 per cent of cases was in response to the pandemic.
The BBB has said that it expects demand for loans to remain strong among SMEs this year, while also warning that many will find it tough to pay back money they now owe in relation to debts they took on last year.
“There are both a sizeable number of smaller businesses in a position to borrow further in 2021 and a sizeable number likely to struggle with debt repayments,” the BBB has said.
“High levels of debt, and in particular the number of businesses with higher debt to turnover ratios, suggests a potential drag on viable applications for finance in 2021.”
According to the BBB, when asked in Q4 2020, only one in five (21 per cent) of smaller firms in the UK said they expected to grow over the course of 2021, with 4 per cent indicating they expect to have closed or sold their businesses before the beginning of 2022.
Around a third of the companies polled said they expect to see their operations shrink to some extent during 2021.
Hospitality operators are among those to express the greatest pessimism about their future financial prospects towards the end of 2020, with some 37 per cent suggesting they may well not be able to repay the amounts they’ve borrowed to survive the impact of the coronavirus pandemic.
However, Catherine Lewis La Torre, chief executive of the BBB, has said she hopes that a stronger-than-expected economic recovery might yet put SMEs and other businesses into a better position financially than they’d been anticipating as 2021 unfolds and the UK comes out of lockdown.