Only 63% Of SMEs Confident They'll Repay COVID-19 Loans

By Irene Madongo
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Law360, London (February 17, 2021, 4:48 PM GMT) -- Small and midsized British businesses will probably face tough economic conditions well into the second half of this year, with only 63% confident in their ability to repay government COVID-19 support loans, according to a study by technology solutions company Sage.

Sage also said on Tuesday that the small and midsized enterprise sector, companies known as SMEs, is expecting an average 19% cut in jobs, based on a survey of 1,119 owners or decision-makers at businesses employing less than 250 people.

The sector has turned to loans to help cope through the pandemic. According to Sage, the most popular loans are those provided by the government. Other loans came from family and friends or commercial lenders.

"Only 63% of businesses are currently confident in their ability to repay these loans," said Sage. The company also found that half of SMEs believe they have become more efficient for the long-term because of the coronavirus crisis but that financial challenges continue to bite.

The government's Bounce Back loan scheme for small businesses encompasses a huge chunk of the £71 billion ($98 billion) in pandemic lending support from the state, which has worked alongside the banks to provide loans.

The program has given £45 billion in finance to more than 1.47 million small businesses affected by the pandemic, trade body UK Finance said last month. Under the scheme, no repayments or interest are due from the borrower during the first 12 months of the loan term.

"The worst economic crisis in three centuries has left a bleak outlook for SMEs. 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," said Paul Struthers, managing director of Sage UK and Ireland.

This month HM Treasury announced its Pay As You Grow scheme that adds flexibility for the Bounce Back loans, such as allowing companies an extra six months to repay their loans. It also gives businesses the option to extend the life of their loans from six to 10 years.

Another program, the Coronavirus Business Interruption Loan Scheme, which took off in March 2020 and is designed for SMEs, has helped more than 87,000 companies.

An HM Treasury spokesperson said Wednesday the government's loan schemes have given a lifeline to thousands of businesses across the U.K.

"But we know businesses need every pound to protect jobs rather than repaying loans, which is why in September we announced flexibility on repayments for both the Bounce Back Loans and Coronavirus Business Interruption Loans schemes," the spokesman added.

A spokesperson for UK Finance on Wednesday said the banking and finance industry remains committed to supporting businesses of all sizes through the crisis.

"As the outlook for many businesses remains challenging, the flexibility of Pay As You Grow will help smaller businesses manage their cash flow and repayments. Lenders will be contacting BBL borrowers in advance of their first payments to outline their options," the spokesperson said.

--Additional reporting by Lucia Osborne-Crowley. Editing by Marygrace Murphy.

Update: This story has been updated with comment from a spokesperson for UK Finance.

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