Flexible finance needed to prevent unsustainable debt crisis – BCC

British companies will need flexible financial solutions to avoid an unsustainable debt crisis, according to a new survey from the British Chambers of Commerce (BCC).

The results show that 42 per cent of firms took on debt during the coronavirus pandemic, with more than one in four saying they may need to scale down operations to repay and one in ten saying they might have to cease trading.

These businesses were evenly spread across all sectors, with manufacturing firms slightly more likely to have taken out finance.

71 per cent of those accessing loans through things like the Coronavirus Business Interruption Loan Scheme (CBILS) and the Bounce Back Loan Scheme (BBLS) were using it to support cashflow and critical day-to-day business operations.

43 per cent were using lending schemes to pay for overheads, while 40 per cent were using them to pay staff and 32 per cent for paying other debts.

Crucially, 64 per cent of respondents said that the repaying of finance built up during the pandemic might have a negative impact on their business.

This could mean having to reduce headcounts, suspend production and change investment plans.

In light of this, the BCC calls for innovative approaches to recapitalisation to prevent thousands of firms from falling into a spiral of unsustainable debt.

One method could be the introduction of a ‘student loan’ style scheme where loans become a contingent tax liability that is repaid on a means-tested basis. 18 per cent of survey respondents supported this idea.

The survey also found that 44 per cent of firms said they had not yet attempted to access finance, but still faced challenge business conditions.

While 38 per cent have seen increases in revenue from UK customers, a further 38 per cent have seen a decrease.

Local lockdowns and the planned withdrawal of various Government support schemes in the autumn could mean many more businesses need financial support in the coming months.

BCC director general Adam Marshall said: “Government loan schemes have been a lifeline for many businesses during the pandemic. So many firms have taken on debt in order to survive.

“With many businesses still facing reduced demand, depleted cash reserves, and continued uncertainty, bold solutions will be needed to prevent thousands of firms across the UK from falling into a spiral of unsustainable debt.

“If not addressed, large debt burdens could stifle the recovery, threatening jobs and constraining business activity and investment.

“Over the coming months, Government, regulators and banks must work together with business communities to find solutions that help firms repay coronavirus loans sustainably.”