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SMEs remain in the red zone: The COVID loan repayment crisis

Written by Clive Rich on Thursday, 23 September 2021. Posted in Insight, Commercial law, Analysis, Legal

LawBite CEO Clive Rich reflects on his company’s recent poll which suggests the start of COVID loan repayments, and the tapering of furlough is significantly disrupting the SME sector.

SMEs remain in the red zone: The COVID loan repayment crisis

LawBite CEO Clive Rich reflects on his company’s recent poll which suggests the start of COVID loan repayments, and the tapering of furlough is significantly disrupting the SME sector.

Battling to survive the past eighteen months of uncertainty and restrictions, the small businesses community was propped up by a series of government support packages from Furlough to Recovery Loans. Immediate threats were addressed but with Covid loan repayments now due and furlough tapering off, question marks surrounding the longer-term impact for SMEs remain.

To get a clearer picture of the current situation, LawBite commissioned a poll to measure how the steady termination of Covid support is impacting the cash flow and supply chains of SMEs.

The results should not be glossed over.

Unsurprisingly, the survey found that 59% of SMEs accessed loans or the furlough scheme during the pandemic – amounting to an estimated 3.5 million businesses in the UK. LawBite has been working with SMEs at ground level throughout these turbulent times, so we were able to witness firsthand the relief and enthusiasm of business owners when these packages became available. 

Billions have been spent by the government to support businesses but now, having successfully navigated the roadmap to unlocking society, the Treasury’s attention will turn to balancing the books. Early indications suggest this shift will hit SMEs hard, with thousands of firms unable to repay loans. Our research shows that at least one in ten- roughly 354,000 SMEs- are struggling to pay back the money they were loaned.

The knock-on effects for SMEs will also play a significant part in the UK’s economic recovery. Weighed down by repayments, SMEs will find it difficult to rise from the ashes of the pandemic and grow their business thus stifling nationwide economic progression. 

Our polling revealed that 40% (141,600) of SME businesses felt they unable to invest in new technology or products due to cash flow concerns. As the founder of an SME that puts technology at the heart of our services, it is important that smaller businesses are constantly looking for ways to invest in tech to compete within the digital economy. Indeed, firms that had strong digital capabilities weathered the COVID storm better than those without.

SMEs account for over 99% of all businesses in the UK, equating to three fifths of UK employment. It is therefore of great concern that LawBite’s survey reveals employment is suffering as loan repayments commence. 

Not only are an estimated 88,500 SMEs reporting that they are unable to hire any new staff, but 16% cannot afford to pay their current employees. Without the furlough scheme, almost a fifth (18%) of those surveyed are set to make redundancies. With many SMEs unable to take on more staff or letting go of their employees, we could see thousands of Brits facing unemployment come the end of the year.

It makes for difficult reading, but the future of the SME sector is not yet written. Our results have shown that Covid loan repayments are specifically affecting cash flow and the ability to advance technological services, therefore improved access to finance and schemes to kickstart investments in tech should be the government’s top priority for supporting SMEs post-COVID.

About the Author

Clive Rich

Clive Rich

Clive Rich is the CEO and Founder of LawBite, a virtual legal platform that helps SMEs get easier access to expert legal advice that is clearer and more affordable. Clive is a former barrister and expert negotiator.

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