SMEs need to borrow to survive recession

That’s according to a recent survey from Allica Bank, which polled 150 established businesses (those with 10-100 employees) on their outlook for 2023 – a year that looks set to be dogged by recession, inflation and rising interest rates. More than two in five (43%) said they will need to borrow simply to survive, while nearly the same proportion (37%) are doing so to refinance existing debt.

It follows the British Business Bank reporting that while total debt held by SMEs reached new highs during the pandemic in 2020, loan repayments have been becoming a smaller share of business cashflows as turnovers have started to recover.

The bank says this could lead to a growing number of businesses becoming over-leveraged, or missing opportunities to support growth. Recessions often lead to a higher proportion of defaults on business loans, while the Coronavirus Business Interruption Loans (CBILS) is already seeing an 8% default rate, amounting to over £6 billion, according to the government’s latest report.

Conrad Ford, chief product officer at Allica Bank, said: “It’s the responsibility of banks to give businesses the best chance of surviving and thriving through this recession by ensuring they can make informed choices.

“This needs to be backed up with fast and clear responses to loan applications, so that businesses aren’t waiting weeks for an answer. While banks should actually look individually at each application and assess each business on their own merits and opportunities.”

Will the recession still looms large, the latest ONS figures show that GDP has risen.