Some SMEs anticipate never repaying Covid support loans

According to Nucleus Commercial Finance research, this equates to 2.3 million SMEs who anticipate never repaying their loan. The anticipated default rate increases to 75% for small businesses with 10-50 employees.

These figures are significantly higher than the estimates from the Office for Budget Responsibility which suggest that up to 40% of Bounce Back Loan Scheme borrowers may default. And with 51% of SMEs receiving financial support through loan schemes, the government could be facing a significant shortfall as 10% of SME leaders who received this support said they would find it extremely difficult to repay their loan.

Commenting on the research, Nucleus Commercial Finance’s chief executive Chirag Shah said: “Government loans have been a vital lifeline at a time of crisis, helping SMEs to survive and start to recover from the impact of the pandemic. However, based on this insight, the government is going to be facing challenges if defaults reach these anticipated levels and businesses will require additional finance to help them get by.

“Rather than leaving SMEs, who underpin our economy, on the brink of survival, government and industry need to engage with them now to provide ongoing support and signpost them to the solutions available. It’s crucial that government and industry work together to support SMEs over time as they transition their finance from these loans to other sources of finance.”

Of the SMEs who received a loan, 64% have started making repayments - 44% through their own revenue and 21% through a loan from another source - while 34% haven’t started repaying their loan. This is made up of 17% who have taken a repayment holiday, 9% who have defaulted on the loan before starting repayments, and 8% who haven’t started making repayments yet.

Sole traders were the most concerned - 30% - about having to pay back the loan, compared to 17% for medium companies, 4% for small firms and 6% for micro businesses.

Shah added: “When looking ahead, if the government introduces new loan schemes, technology and expertise needs to be at the forefront of the decision-making process. Making accurate and fair decisions will be vital in delivering SMEs the support they are looking for, at a speed that matches their ability to repay and creating a seamless customer experience - throughout the lifetime of the loan.”