The British Business Bank (BBB)’s latest Small Business Finance Markets report, has revealed that gross bank lending (excluding overdrafts) to smaller businesses rose to £104bn in 2020, 82% higher than in 2019.
The report found that nearly half of the UK’s small and medium-sized businesses sought financial support in 2020, more than three times the level of the previous year.
The record borrowing last year lifted total outstanding SME bank debt to £213bn, up from £168bn the year before.
Federation of Small Businesses (FSB) National Chairman Mike Cherry said: “The BBB has been a critical component of the business support landscape over the past year, helping more than a million small firms to access the emergency finance they’ve needed to stay afloat.
"It’s good to see the Start-Up Loans Programme going from strength to strength, helping firms being created in response to economic shifts to emerge as the great businesses of tomorrow. The BBB’s role will no doubt become even more fundamental as we withdraw from EU funding streams.
“Of the small firms that have recently accessed finance, four in ten now describe their debt as “unmanageable”. Many of those in the very hardest hit sectors, not least events, travel and those at the heart of our night time economies, accessed loans last summer in the hope that we’d be out of the woods by Christmas. A lot of them do not fit the narrow definitions of frontline retail, leisure and hospitality so have received little by way of direct government support.
“The fact that three quarters of small firms that are applying for finance are doing so in order to assist cashflow, underscores how Covid-linked disruption is exacerbating our late payment crisis - a crisis which destroys 50,000 firms a year at a cost of at least £2.5bn to the economy. Big corporates need to recognise that treating suppliers like credit lines is self-defeating, serving only to embed stress and vulnerability into supply chains.
“The question now is, what steps should policymakers and banks take to ensure emergency debt delivers value to the economy? More than half of those with facilities say a student loan approach – whereby repayments are only made once a firm is profitable again – would mark a helpful way forward. Greater incentives to adopt an Employee Ownership Trust model could also help many in this area. As repayments start to fall due in the coming months, lenders should remember that these loans were only made possible by the Government in order to help firms in need, and treat borrowers accordingly.
“We very much hope the Recovery Loan Scheme proves successful over the years ahead and look forward to regular updates on take-up.”