The pandemic will likely land small businesses an additional £173,000 debt pile each year as loans taken out during the coronavirus crisis continue to pile up, according to a new report.
Half of small and medium-sized enterprises (SMEs) in the UK have taken out a Covid-related loan, according to a survey of more than 1,000 small businesses by cloud computing firm Sage.
On average, this will leave businesses with an additional debt burden of around £173,000 once repayments begin, with almost a third of firms unsure whether they will be able to pull themselves out of the red.
Sage found SMEs faced a raft of major challenges over the next year despite a potential loosening of lockdown restrictions.
Small businesses have seen revenue slump more than 20 per cent on average during the latest lockdown, on top of an average 41 per cent decline in revenue last year, according to the report.
Leading business figures have piled pressure on the chancellor to extend financial support measures ahead of his spring Budget announcement on 3 March, amid warnings that further lockdown restrictions could cripple British businesses.
A survey by the Office for National Statistics (ONS) released last month found that 15 per cent of businesses that had not stopped permanently trading had little or no confidence that their business would survive the next three months.
That figure hiked to 53 per cent in the hospitality sector, which has felt the full weight of business closures during lockdown.
Sage warned of a potential redundancy time-bomb looming on the horizon, with a quarter of SMEs surveyed saying they would likely make job cuts as government support wanes.
“The worst economic crisis in three centuries has left a bleak outlook for SMEs. Instead of being a season of new beginnings, spring looks set to further slam the brakes on businesses as support schemes near their end and some loan repayments begin,” said Paul Struthers, managing director at Sage.
“With a redundancy ‘time bomb’ on the horizon, a significantly increased debt burden is also starting to weigh heavily on the shoulders of businesses desperately trying to recover and invest in their future,” he added.
However, Struthers said extension of initiatives such as the VAT cut for businesses would provide “green shoots” for smaller businesses.
More than 70 per cent of SMEs surveyed by Sage said they supported an extension of the VAT cut, in a move that would provide “breathing space” for companies and save wide-scale job losses.
It comes after the Institute for Fiscal Studies (IFS) think tank warned today that job losses may continue to balloon as the furlough scheme winds down, with large swathes of the hospitality industry still shuttered under current lockdown restrictions.
The IFS said the pandemic has affected the jobs market across the UK, with every region recording an increase in job losses last year.
London suffered the largest number of job losses of any UK region during the pandemic last year, the IFS warned, as it said the capital continues to feel the weight of a “geographically unequal crisis”.
“The number of jobs lost has varied a lot, with London really standing out as having lost a lot of jobs,” said Helen Miller, deputy IFS director.
“There will be a role for well targeted temporary stimulus at some point,” said Miller. “I wouldn’t expect targeted fiscal stimulus to be a big part of the Budget, but the government should stand ready to act.”