Monday 7 June 2021 1:47 pm

4 in 10 small businesses will struggle to pay Covid loan repayments, research shows

Nearly 40 per cent of small businesses could be at risk of closure when repayments of the government’s Bounce Back Loan Scheme start this month.

Of the businesses surveyed by Mazuma Accountants, 39 per cent said they will struggle to meet payments, while more than a quarter are downbeat about how their firm will fare over the next year.

Some 34 per cent have seen declining revenues over the last 12 months, while 37 per cent saw growth.

“June marks the first month for repayments to be made, but as our research shows there remains a significant number of businesses for whom the recovery has yet to kick into gear,” said Lucy Cohen, co-founder of Mazuma.

‘Pay As You Grow’ option

Some firms may opt for the ‘Pay As You Grow’ repayment option, which may appeal to businesses facing the prospect of finding an extra £700 each month for the next six years.

“While the concept is sound, the implications for businesses who opt to either delay the start of their repayments by six months or extend the term of the loan from six to 10 years, or both, could do more harm than good,” Cohen said.

“This is because interest will be added, and it could affect the business’s credit rating too.” 

What was the loan used for?

When bounce back loans were launched in May last year, there was a rush of applications from firms seeking support as the Covid crisis escalated.

When asked about the reasons for taking the loan in the first place, more than a third said they used it to maintain a positive cash flow.

Meanwhile, 30 per cent of companies used it to pay for bills and 15 per cent used it to invest in the business.

“The fear is that the longer the current (Covid) restrictions remain in place, the more difficult it will be for many already-stretched small businesses to generate the additional income that is needed to repay their bounce back loan,” Cohen added.