UK state-backed Covid loans top £75bn as schemes wind down

UK businesses have borrowed more than £75bn through government-backed Covid-19 emergency loans schemes, according to data released in the final week of the programme.

About 1.6m companies, accounting for more than a quarter of all small to medium-sized businesses in the UK, have now used a pandemic loan from the government.

More than £2bn was borrowed in the past month alone across the four loan schemes, which were launched by the Treasury a year ago during the first lockdown to support companies that were running out of cash.

This rise in the latest numbers, which will be close to final given the schemes end this month, shows the extent of the continuing distress among smaller businesses in the pandemic. 

The data will also raise fresh concerns among business groups about the financial state of many small companies as they emerge from the pandemic with vast debts and only slowly recovering operations.

The British Chambers of Commerce has written to Downing Street warning ministers about the level of debts taken on by companies during the pandemic. In a poll of more than 1,000 businesses, more than a quarter described debts as unmanageable or “high and manageable”, and more than a half said they will need to take on extra debt this year.

£46bn


Lent by the government to smaller companies under the Bounce Back Loan Scheme

In its letter, the BCC also asked for clarity on legal issues surrounding vaccinations and the roadmap out of lockdown for businesses.

Earlier this month, the Office for Budget Responsibility, the independent fiscal watchdog, estimated that bankruptcy and fraud losses from the government’s lending schemes would be about £27.2bn. The “overwhelming majority” of write-offs would come from the Bounce Back Loan Scheme extended to smaller companies, it said.

About £46.5bn has been lent through bounce back loans, which offer fully guaranteed sums of up to £50,000 for small businesses, interest free for the first year.

More than £23bn was lent by banks using the Coronavirus Business Interruption Loan Scheme to almost 100,000 small to medium businesses, and £5.3bn to 716 companies under the Coronavirus Large Business Interruption Loan Scheme.

A further £1.2bn of convertible loans were made under the Future Fund Scheme, which is aimed at supporting lossmaking fast-growth companies that had been unable to access the other schemes.

The government last year allowed additional top-up loans under the bounce back scheme for businesses that had not taken the full amount. The Treasury said 101,666 top-up loans had been approved, valued at £900m.

The government will launch a new recovery loan scheme on April 6, which will offer to guarantee 80 per cent of bank loans of up to £10m.

However, with rules allowing the use of personal guarantees and the likelihood of much higher interest rates than bounce bank loans, some business leaders have warned that companies may not be able to risk taking additional debt through the scheme.

Officials want to return the UK to a more normal lending market, however, having seen the Covid-19 loan schemes absorb much of small business lending during the past year.

The Future Fund, which closed for applications on January 31, will also be replaced with a £375m scheme that will take equity stakes in start-ups.

New data published on Thursday showed that 60 per cent of the £1.2bn lent under the Future Fund was to businesses in London, and a further 15 per cent to those in the south. Just 3 per cent of the funds went to Scotland, Wales and Northern Ireland.