Two thirds of SMEs will struggle to repay state-backed loans

Two thirds of small- and medium-sized enterprises (SMEs) who took out a state-backed loan during the pandemic have said they are going to struggle to pay it back.

This equates to 2.3 million SMEs who anticipate never repaying their loan.

A survey of over 1,000 SME decision-makers by alternative lender Nucleus Commercial Finance found that the anticipated default rate increases to 75 per cent for small businesses, meaning those with 10-50 employees.

According to the latest figures from the British Business Bank, £79.3bn has been deployed through the government-backed loan schemes.

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“Government loans have been a vital lifeline at a time of crisis, helping SMEs to survive and start to recover from the impact of the pandemic,” said Chirag Shah, chief executive of Nucleus Commercial Finance.

“However, based on this insight, the government is going to be facing challenges if defaults reach these anticipated levels and businesses will require additional finance to help them get by.

“Rather than leaving SMEs, who underpin our economy, on the brink of survival, government and industry need to engage with them now to provide ongoing support and signpost them to the solutions available.

“It’s crucial that government and industry work together to support SMEs over time as they transition their finance from these loans to other sources of finance.”

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Of SMEs who received a loan, nearly two thirds (64 per cent) have started making repayments, 44 per cent through their own revenue, and 21 per cent through a loan from another source, however over a third (34 per cent) haven’t started repaying their loan.

This is made up of 17 per cent who have taken a repayment holiday, nine per cent who have defaulted on the loan before starting repayments and eight per cent who haven’t started making repayments yet.

Businesses that are most concerned about repaying the loan are sole traders (30 per cent), followed by 17 per cent of medium companies (those that have 50 to 250 employees), four per cent of small companies (10 to 50 employees) and six per cent of micro businesses (one to nine employees).

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