As the Coronavirus pandemic grinds on in the UK and beyond, the full impact on businesses has yet to be truly understood. But if a new report is any guide then the levels of business borrowing is set to rise enormously as companies look for ways to survive into year two of COVID.
The report, from the accountancy firm EY, reveals that British businesses took on debt at more than twice the normal average growth rate since the crisis began last year and are on course to have borrowed £61bn in total by the end of 2021.
Anna Anthony, UK financial services managing partner at EY, said the “colossal amount” of borrowing was mainly being used to help companies survive, rather than to fund growth.
“The prospect of some, if not many firms, not being able to make the required repayments is concerning for all involved,” she said.
The report adds to the fear that 2021 is going to see the more significant struggle for UK firms. The BDO Output Index, which measures data from the UK’s main business surveys, fell to 70.44 in January, the lowest level in seven months on a scale where figures above 95 indicate economic growth. The gauge averaged 73.62 in 2020, well below the previous low of 83.28 recorded in 2009.
Of course the government says it is drawing up plans for easing coronavirus restrictions in the spring that are expected to be unveiled before the chancellor, Rishi Sunak plans to use his budget on the 3rd of March to announce support measures designed to kickstart the economic recovery.
Last week the chancellor announced a series of measures to help UK businesses with the repayment terms on government-backed emergency COVID loans. Under the new arrangements, announced late on Friday, businesses will have the options of:
- Extending the length of the loan from six years to 10
- Making interest-only payments for six months, with the option to use this up to three times throughout the loan
- Pausing repayments entirely for up to six months
Accountants are a crucial part of any growth strategy, so make sure you stay in close touch with your advisers.
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