UK state-guaranteed Covid loans surpass £ 75bn as projects halt

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UK businesses have borrowed over £ 75 billion thanks to government support Covid-19 emergency loan programs, according to data released during the last week of the program.

Around 1.6 million businesses, representing more than a quarter of all small and medium-sized businesses in the UK, are now using a government pandemic loan.

More than £ 2 billion has been borrowed in the last month alone under the four loan schemes, which were launched by the Treasury a year ago during the first foreclosure to support cash-strapped businesses.

This rise in the latest figures, which will be almost final given the end of programs this month, shows the extent of the continuing distress of small businesses in the pandemic.

The data will also raise new concerns among business groups about the financial condition of many small businesses as they emerge from the pandemic with huge debts and only slowly recover their businesses.

£ 46 billion

Government loaned to small businesses under rebound loan program

British Chambers of Commerce have written to Downing Street warning ministers of the level of debt incurred by businesses during the pandemic. In a survey of more than 1,000 companies, more than a quarter described debt as unmanageable or “high and manageable,” and more than half said they will have to take on additional debt this year.

In its letter, the BCC also requested clarification on the legal issues surrounding vaccinations and the roadmap for ending the lockout for businesses.

Earlier this month, the Office of Fiscal Responsibility, the independent budget watchdog, estimated that bankruptcy and losses due to fraud government loan programs are estimated to be worth around £ 27.2 billion. The “overwhelming majority” of write-offs would come from the Bounce Back Loan Scheme extended to small businesses, he said.

Around £ 46.5 billion has been loaned via bounce back loans, which offer fully guaranteed sums of up to £ 50,000 for small businesses, interest free for the first year.

Over £ 23 billion has been loaned by banks using the Coronavirus Business Interruption Loan Program to nearly 100,000 small and medium-sized businesses and £ 5.3 billion to 716 businesses under the Coronavirus Large Business Interrupt Loan Program.

An additional £ 1.2bn in convertible loans were made under the Future Fund Scheme, which aims to support fast-growing, loss-making companies that had not been able to access other programs.

Last year, the government authorized additional top-up loans as part of the rebound program for companies that had not taken the full amount. The Treasury said 101,666 top-up loans had been approved, valued at £ 900million.

The government will launch a new payback loan scheme on April 6, which will offer to guarantee 80% of bank loans up to £ 10million.

However, with rules allowing the use of personal collateral and the likelihood of interest rates much higher than bouncing bank loans, some business leaders have warned that companies may not be able to take the risk of incur additional debts under the system.

Authorities want to bring the UK back to a more normal loan market, however, after seeing Covid-19 loan programs absorb a large chunk of small business loans over the past year.

The Future Fund, which closed on January 31, will also be replaced with a £ 375million program that will take equity investments in start-ups.

New data released Thursday showed that 60% of the £ 1.2bn loaned under the Future Fund was going to businesses in London, and an additional 15% to those in the south. Only 3% of the funds went to Scotland, Wales and Northern Ireland.

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