Half of small- and medium-sized enterprises (SMEs) have taken out some form of Covid-19 related loan, leaving an average additional debt burden of £173,000 per year once repayment begins.
A survey of more than 1,000 small businesses by cloud computing firm Sage has revealed that out of these loans, the most popular form of borrowing was government-backed loans (12 per cent).
This was followed by borrowing from friends and family (eight per cent) and private business loans from commercial lenders (eight per cent).
However, only 63 per cent of companies are currently confident in their ability to repay these loans. Redundancies among SMEs are also set to rise dramatically within months. Approximately a fifth of SMEs have made redundancies to date, but over a quarter intend to going forward.
Once furlough and other support packages end, two-thirds of SMEs predict negative consequences such as cutting future hiring plans or reducing the hours of some employees.
Over half of SMEs predicted that if ‘business as usual’ resumed tomorrow, their productivity would have improved compared to a year ago. However, 71 per cent said they are not in a position to invest at the level they would like to and 42 per cent aren’t able to invest at all.
With the right measures in place, SMEs are determined to lead the economic recovery. The majority of businesses that are currently unprofitable expect to return to profit in the next 12 months.
Almost three quarters (71 per cent) of SMEs also support a cut to VAT to stimulate demand.
“The worst economic crisis in three centuries has left a bleak outlook for SMEs,” said Paul Struthers, managing director of Sage UK and Ireland.
“Instead of being a season of new beginnings, spring looks set to further slam the brakes on businesses as support schemes near their end and some loan repayments begin.
“With a redundancy ‘time bomb’ on the horizon, a significantly increased debt burden is also starting to weigh heavily on the shoulders of businesses desperately trying to recover and invest in their future.
“But the majority of SMEs can see green shoots through a cut in VAT to unlock untouched household spending, giving SMEs the financial breathing space they need and potentially saving many jobs and livelihoods.”