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Unsustainable Debts ‘Putting 780,000 SMEs At Risk’

Written by: Keith Tully

Stressed business man in debtAs many as 780,000 small and medium-sized enterprises could be at risk of failure unless steps are taken to recapitalise the debts they’ve taken on to survive the Covid-19 crisis.

That’s the view of a banking lobby organisation called TheCityUK, which is calling for businesses to be given a chance to defer payments on emergency loans they’ve taken on in recent months if they can’t afford to make them.

A report has been created by the group outlining proposals for a ‘student loan style’ system that would allow companies to pay back their debts only when they are generating enough money to do so sustainably.

The government has provided guarantees on business loans worth around £43 billion during the Covid-19 crisis but it is generally thought likely that significant portions of those loans might never be paid back.

Repayments and interest charges are not yet due on the loans given out as emergency funding recently but both would become due from next year unless alternative policies in relation to those debts are introduced.

According to TheCityUK, it is essential for those debts to be recapitalised to protect in the region of 780,000 companies and an estimated three million jobs.

The banking lobby says businesses will soon need help dealing with their debts and insisted that the emergency loans they’ve taken on should be seen as something more like means-tested tax liabilities rather than commercial loans in the traditional sense.

Omar Ali, chairman of TheCityUK’s recapitalisation technical working group, has emphasised the importance of urgent action to address the build up of debt among SMEs across the country.

Mr Ali has said that economic conditions are currently such that “some sectors may enter into difficulty as early as autumn this year”.

Sir Adrian Montague, from TheCityUK’s leadership council, said in a statement: “Covid-19 is a 100-year storm which has caused untold economic damage.

“The government’s support schemes have been the essential sandbags holding back the flood, protecting businesses and saving jobs.

“However, with tough trading conditions forecast to remain, paying back these loans will be challenging for many SMEs. To secure a strong recovery, action must be taken now to help them sustainably retrench, rebuild and return to growth.”

Keith Tully

Author
Keith Tully
Partner

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Keith has been involved in Business Rescue since 1992, during which time he’s worked for both independent and national firms. His specialties include company restructuring matters and negotiating with HMRC on his clients behalf.

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