Two-thirds of SME leaders who received financial support from the government’s Covid loan schemes say their company is likely to default on the loan.
This is equivalent to 2.3 million SMEs that plan to never repay their loan.
The anticipated default rate increases to 75% for small businesses with 10 to 50 employees. The number of expected defaults by SMEs is significantly higher than estimates from the Budget Responsibility Office suggesting that up to 40% of BBLS borrowers may default.
With more than half of SMEs receiving financial support through loan schemes such as CBILS, BBLS and RLS, the government could be facing a significant deficit, with 10% of SME leaders receiving a government loan saying that they would find it extremely difficult to repay their payments. loan.
Chirag Shah, CEO of Nucleus Commercial Finance, which commissioned the research, comments: “Government loans have been a vital lifeline in a time of crisis, helping SMEs survive and begin to recover from the impact of the pandemic. However, based on this information, the government will face challenges if defaults reach these anticipated levels and companies will require additional financing to help them get ahead.
“Rather than leaving SMEs, which sustain our economy, on the brink of survival, government and industry must engage with them now to provide ongoing support and sign off on available solutions. It is crucial that government and industry work together to support SMEs over time as they transfer their financing from these loans to other funding sources. “
Of the SMEs that received a loan, almost two-thirds have started to make repayments, 44% through their own income and 21% through a loan from another source. More than a third have not started to repay their loan. This is made up of 17% who have taken a vacation period for repayment, 9% who have defaulted on the loan before beginning repayments, and 8% who have not yet started repaying.
Individual traders were the most concerned about having to repay the loan, compared to 17% of medium-sized companies, 4% of small companies, and 6% of micro-companies.
Chirag Shah, CEO of Nucleus Commercial Finance continues: “Looking to the future, if the government introduces new loan schemes, technology and expertise must be at the forefront of the decision-making process. Making accurate and fair decisions will be vital to provide SMBs with the support they seek, at a speed that matches their ability to pay, and to create a seamless customer experience, throughout the life of the loan. “