Over 300,000 firms on emergency loans, but “unsustainable debt” levels could hit £100bn

Announcing the extension of the furlough scheme until October, chancellor Rishi Sunak also released latest statistics on Monday (May 12), revealing approval totals for government-guaranteed business loans.

They show the following:

* 268,000 Bounce Back Loans worth £8.3bn have been approved;

* 36,000 loans worth more than £6bn have been approved through the Coronavirus Business Interruption Loan Scheme (CBILS);

* £359m of loans, through CBILS for larger firms, have been granted.

Although hundreds of thousands of businesses have been given a lifeline through such schemes, total figures on applications also released by the Treasury, show that over 130,000 businesses may still be limbo, either because their application is yet to be decided – or has been refused.

And while approvals for bounce back loans have flowed fast, the pace has been slower on interruption loans for SMEs. The government’s own release today did, however, include reactions from business trade bodies emphasising how vital these support measures have been.

Mike Cherry, national chairman of the Federation of Small Businesses, said the Job Retention Scheme has been a lifeline in helping small employers keep their staff in work. “Small employers have told us that part-time furloughing will help them recover from this crisis and it is welcome that new flexibility is announced today,” he added.

Adam Marshall, director general of the British Chambers of Commerce, said: “The chancellor is once again listening to what we’ve been saying, and the changes planned will help businesses bring their people back to work through a part-time furlough scheme.”

Dame Carolyn Fairbairn, director-general of the CBI, said that extending the furlough to avoid a June cliff-edge will “protect millions of jobs”.

Loan scheme approvals

Building unsustainable debt?
While business lobby groups supported the furlough extension, a separate trade body has warned that private businesses are building up unsustainable debt levels – which could reach beyond £100bn.

In a letter to Bank of England governor Andrew Bailey, TheCityUK, which represents UK-based professional services firms, shared analysis claiming that unsustainable debt held by UK private non-financial corporations (PNFCs) could reach between £90bn and £105bn.

Preliminary work by TheCityUK’s Recapitalisation Group – which brings together leaders from across the financial and related professional services industry – suggests debt levels could reach this level by March 2021.

It also estimates that of the total, CBILS lending could contribute £10bn to £20bn. TheCityUK warns in its letter that such debt could inhibit employment, research and development, investment and economic recovery. It added that firms will likely need to raise new equity and/or restructure debt.

Miles Celic, chief executive of TheCityUK, said: “Businesses have been put into suspended animation until they can safely reopen. This was absolutely the right thing to do, but the economy will need to be reawakened as part of its process of recovery.”

TheCityUK’s Recapitalisation Group is working with businesses and the government to explore options to recapitalise UK SMEs, and resolve debt by optimising the availability of capital