SMEs repay over £5 billion in first six months of 2023 to erode pandemic debt pile

Analysis of the Bank of England’s data on SME lending shows that through the first half of 2023 SMEs saw net lending decrease by £5.3 billion.

Research by global financial technology firm Ebury highlights the urgency with which businesses are now making debt repayments in the aftermath of the various COVID-19 loan schemes and the rising cost of servicing that debt.

Through 2020, SMEs saw net borrowing spike to £43.9 billion – including £28.1 billion borrowed in the two months of May and June alone – to survive the pandemic amid unprecedented restrictions and economic shutdown.

However, in 2021, SMEs made total repayments of £7.5 billion followed by a further £8.5 billion in 2022. The pace of repayments accelerated through the first half of 2023 reaching £5.3 billion as the cost of borrowing becomes increasingly problematic for businesses.

It means since 2021, SMEs have repaid a total of £21.4 billion – 49% of the borrowing taken on in 2020.

The majority of SME lending was provided through the government-backed Coronavirus Business Interruption Loan Scheme (CBILS) schemes, of which Ebury was an accredited lender. The Government’s own figures show that £25.9 billion was loaned out to around 100,000 firms under the CBILS scheme – under a third (30%) of CBILS facilities have been repaid.

That business support was launched amid a broader package of help including additional loans, the Bounce Back Loan Scheme, capital repayment holidays, extended overdrafts and asset-based finance.

Phil Monkhouse, Head of Sales at Ebury, commented: “The pandemic drove SMEs to take on an unprecedented level of borrowing in a bid to survive the economic shutdowns imposed to tackle the spread of COVID-19.

“Three and half years on from the outbreak of the pandemic, we are still seeing the ramifications of the financial decisions businesses had to take to keep the shutters open. SMEs are continuing to eat into the mountain of debt, yet the changing macro-economic environment has injected a fresh sense of urgency.

“Many SMEs will be struggling amid the wider pressures on the economy, but the increase in interest rates pushing up the cost of servicing debt will be particularly painful. We expect to see businesses strive to pay down their borrowing as quickly as possible to minimise interest payments and get back into the black.”