Small businesses will emerge from the Covid-19 pandemic with more debt than at any time in history, the latest figures from the government's emergency support schemes show. By mid-November, the Bounce Back Loan Scheme (BBLS) had distributed £42.2bn to just under 1.4m of the smallest companies. The BBLS allows small companies to borrow up to £50,000 with a 100% government guarantee and no interest or fees for the first year.
Like the loan scheme for larger companies, the Coronavirus Business Interruption Loans (CBILS) Scheme, bounce back loans carry 10-year terms. Almost 78,000 companies have borrowed a total of just under £18.5bn in coronavirus business interruption loans.
The BBLS money has been distributed via the main high-street banks, although a number or large alternative lenders have also been accredited with the CBILS scheme. However, the great majority of the new lending is on the balance sheets of the UK's largest banks. Having been stable at around £165bn for the past three years, the major banks' stock of SME lending has rocketed since the emergency schemes were introduced.
It now stands at around £210bn – above the level it reached before the financial crisis of 2008-09 and subsequent credit crunch. Stuart Law, CEO of leading non-bank lender Assetz Capital, says: "That's way above [the banks'] comfort levels in my view. I can see there being very limited appetite for normal lending by the banks if it's not inside Cbils." Once the BBLS scheme ends, he argues, banks' appetite to lend small sums to micro-businesses will have been "used up for some years to come".
Next year could be a tricky one for small and micro-companies seeking new loan finance.
Andy Davis is an author for accountingcpd. To see his courses, click here.
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