SMEs rush to repay Covid loans amid higher interest rates
Small- and medium-sized enterprises (SMEs) repaid over £5bn-worth of finance in the first half of 2023, as businesses rush to repay loans with higher interest rates.
Analysis of the Bank of England’s data by financial technology firm Ebury found that SME borrowing spiked to £43.9bn in 2020 as firms took out finance to survive the pandemic.
However, in 2021, SMEs made total repayments of £7.5bn, followed by a further £8.5bn in 2022.
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The pace of repayments has accelerated this year, with £5.3bn repaid in the first six months alone, as the cost of borrowing becomes increasingly problematic for businesses.
The latest data means that SMEs have repaid a total of £21.4bn since 2021.
Ebury said that the findings highlight the urgency with which businesses are now making debt repayments in the aftermath of the various Covid-19 loan schemes and the rising cost of servicing that debt.
The majority of SME lending in recent years was provided through government-backed loan schemes. £25.9bn was channelled to around 100,000 firms under the coronavirus business interruption loan scheme, and 30 per cent of these facilities have now been repaid, according to government data cited by Ebury.
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Other government support included the Bounce Back Loan Scheme, capital repayment holidays, extended overdrafts and asset-based finance.
“The pandemic drove SMEs to take on an unprecedented level of borrowing in a bid to survive the economic shutdowns imposed to tackle the spread of Covid-19,” said Phil Monkhouse, head of sales at Ebury.
“Three-and-half years on from the outbreak of the pandemic, we are still seeing the ramifications of the financial decisions businesses had to take to keep the shutters open. SMEs are continuing to eat into the mountain of debt, yet the changing macro-economic environment has injected a fresh sense of urgency.
“Many SMEs will be struggling amid the wider pressures on the economy, but the increase in interest rates pushing up the cost of servicing debt will be particularly painful. We expect to see businesses strive to pay down their borrowing as quickly as possible to minimise interest payments and get back into the black.”
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