Thousands of small firms may never repay Covid loans, poll suggests

More than a fifth of small firms plan to pay off Government Covid-19 loans within a year but thousands may never repay emergency finance, figures have suggested.

Results of a survey compiled for the PA news agency shows that 22% of small companies aim to clear their Government-backed loans over the next 12 months in a sign the sector is hoping for a rapid recovery.

However, the poll by Barclaycard Payments – conducted alongside its quarterly small business barometer – found that 1% of the 670 senior staff working in UK small businesses said they do not ever expect to pay back their loans, suggesting as many as 16,000 firms may never repay.

More than 1.6 million small businesses have borrowed around £70 billion from emergency loan schemes administered by the British Business Bank for the Treasury.

It has left businesses with billions of pounds in loans that they should pay off over the next decade, spreading the shock of Covid-19 across the period.

The National Audit Office last year revealed estimates that between 35% and 60% of borrowers might default on their loans.

The first payments are due this month as the Treasury has been picking up interest payments for the first year.

Under the terms of the Bounce Back scheme – which has proved by far the most popular – firms can borrow up to £50,000, based on turnover, at a flat interest of 2.5%.

But the Government launched a “pay as you grow” initiative earlier this year, allowing firms to extend their loans to 10 years.

The small business poll showed the majority of companies (28%) are looking to repay their loans within the next five years, 24% within three years, while 15% are set to pay them off within a decade.

The survey found that 62% of those polled have taken out Government-backed Covid-19 loans.

The British Business Bank has been offering loans under three schemes – the Bounce Back Loan Scheme, Coronavirus Business Interruption Loan Scheme and Coronavirus Larger Business Interruption Loan Scheme.

Recent figures from the SME Finance Monitor showed that around one in five (19%) firms had spent none of their Government-guaranteed finance facilities, with many planning to pay the cash back as soon as possible.

On the other hand, 23% of businesses said they have spent all the money from their loans, leading to worries about repayments.