One third of SMEs say they will go under unless repayments on COVID business loans are scrapped, according to a new survey of small and medium size businesses in the UK.
Conducted by the Fighting Back for Business campaign, the data reveals that the majority of businesses who took out emergency business loans during the pandemic will struggle to meet repayments. A quarter of small businesses surveyed have already seen as much as £100,000 drain from their balance sheets since March 2020. Two thirds of business owners expect their companies to either fold or be irreparably damaged by the additional burden of repaying COVID loans they took out to survive lockdowns.
Business owners revealed they had no choice but to take out an emergency business loan, either because they had been forced to close during the pandemic, or because the government’s emergency lockdown policies reduced their profitability and lead to economic uncertainty.
When asked if the Chancellor Rishi Sunak’s new “pay-as-you-grow” initiative will help alleviate burdens, 95 percent of respondents said that this will only increase the amount of interest they will pay, leaving loans hanging over businesses for longer and impeding future growth.
The stark new findings come just a week after 388 businesses from the Fighting Back For Business campaign wrote to the Chancellor in an open letter, calling for debt accrued through Government-backed loans to be entirely written off in the Budget for Small and Medium-Sized Enterprises (SMEs).
To date, the Government has given out £68.2 billion in loans to over 1.5 million SMEs. Writing these off would have cost less than half of what is cost to bail out the banks after the 2008 crisis.
James Thompson, Founder and Director of tour company Marmot Tours, said: “We have been unable to run any holidays for 18 months, so have not had any income during this period. We are surviving on a loan, which is going to take years to repay. There has been no tailored support from the UK government for the travel industry. We are currently uncertain when travel will resume and we desperately need these loans to be scrapped if we are going to survive.”
Entrepreneur Simon Dolan said: “SMEs are the backbone of the economy and it is tragic to see how many of them are being damaged beyond repair in lockdown. Time and time again these businesses have dusted themselves off and started again, constantly adapting their business models to keep operating in the most challenging of circumstances. SMEs are engines of growth that lead innovation and provide new sources of employment, so it is imperative they are protected.
No business owner will have wanted to take out these loans. Instead, their hands were forced by the Government through the implementation of measures which were completely disproportionate to the threat. It is only by using these loans that SMEs had any hope of surviving, by spending thousands of pounds in attempt to be ‘Covid secure’ and keep things going.
Rather than tackling the issue in the budget this week, the Chancellor has instead announced another Recovery Loans Scheme to replace the utterly destructive Business Interruption Loans schemes when it comes to an end. This announcement represents nothing but lip-service, and will do little to alleviate the immense economic pressures SMEs are under. The first step towards a thriving economy post-coronavirus hinges on businesses still being open and not weighed down by looming loan repayments. The chancellor’s failure to recognize this is likely to lead to a new tidal wave of insolvencies and business failures this year.”