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A tenth of businesses that are debt-laden due to COVID-19 could fail

Published: 15/09/2020 By Jane Price

A new study from the British Chambers of Commerce (BCC) and banking group TSB has revealed that as many as 1 in 10 businesses that have incurred debts from Government-backed Coronavirus schemes could fail.

The study showed that around 42% of businesses have used schemes, such as the Bounce Back Loan and Coronavirus Businesses Interruption Loan, during the current crisis.

As a result of taking on this additional debt, a quarter of businesses have reported that they may have to scale back operations to repay what they owe in future, while a further 11% said they might have to cease trading.

The survey of 502 firms, predominantly operating in the manufacturing and services sectors, also revealed that most companies relying on schemes had done so to support critical day-to-day business operations.

It showed that around 71% had cash flow issues, 43% used the money to cover critical overheads and 40% said that without the support they couldn’t afford to pay staff.

Responding to the findings, Dr Adam Marshall, Director of the BCC, said “With many businesses still facing reduced demand, depleted cash reserves, and continued uncertainty, bold solutions will be needed to prevent thousands of firms across the UK from falling into a spiral of unsustainable debt. If not addressed, large debt burdens could stifle the recovery, threatening jobs and constraining business activity and investment."

As well as looking at the impact of the pandemic, the BCC research also asked businesses how they think loans and support should be repaid to reduce the financial stress on businesses. Of those companies asked, nearly a fifth said they would like a student-loan-style repayment system, whereby loans are contingent on a means-tested basis. This was followed by 16% of businesses who said they would prefer a longer fixed-term period to repay the loan.

"Over the coming months, the Government, regulators and banks must work together with business communities to find solutions that help firms repay coronavirus loans sustainably and access the support and services they need at this challenging time," Dr Marshall added.

If you are concerned about debt issues as a result of the financial support you have received during the pandemic, please contact us. The sooner you get in touch the more options may be available to you.