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1 in 10 firms fear going bust due to COVID-19 debt

Oscar Williams-Grut
·Senior City Correspondent, Yahoo Finance UK
·2-min read
A pedestrian walks past a shuttered jewellery store with a closing down sale poster in the window in Chester, northwest England on August 12, 2020. - Britain's economy contracted by a record 20.4 percent in the second quarter with the country in lockdown over the novel coronavirus pandemic, official data showed Wednesday.  "It is clear that the UK is in the largest recession on record," the Office for National Statistics said. Britain officially entered recession in the second quarter after gross domestic product (GDP) contracted by 2.2 percent in the first three months of the year. (Photo by Paul ELLIS / AFP) (Photo by PAUL ELLIS/AFP via Getty Images)
A pedestrian walks past a shuttered jewellery store with a closing down sale poster in the window in Chester, northwest England on August 12, 2020. Photo: PAUL ELLIS/AFP via Getty Images

One in 10 businesses that took out loans during the COVID-19 crisis fear they could go bust as a result of the debt burden.

The British Chamber of Commerce (BCC) and TSB Bank on Tuesday said that a survey of over 500 businesses found most companies that took on debt during the crisis feared it would now damage their future prospects.

Businesses have borrowed over £50bn ($64bn) under government-backed lending programmes since March.

The BCC said this cash was vital to ensure the survival of many companies. However, after a historic collapse in UK GDP and with the recovery forecast to be slow, many small and medium sized businesses now fear they could be sunk by their debt load.

READ MORE: 3 million UK jobs at risk from £35bn of unsustainable COVID-19 debt

“With many businesses still facing reduced demand, depleted cash reserves, and continued uncertainty, bold solutions will be needed to prevent thousands of firms across the UK from falling into a spiral of unsustainable debt,” BCC director general Adam Marshall said in a statement.

42% of businesses surveyed by the BCC and TSB took out loans through government-backed schemes such as the Bounce Back loan programme and the Coronavirus Business Interruption Loan Scheme.

Almost two third of those who took on debt said they now believed it would have a negative impact on their business. One in ten fear they could go under as a result of the debt burden.

The banking industry estimates that as much as £35bn of COVID debt could prove to be unsustainable. A report in July estimated that 250,000 companies could be at risk of collapse, putting 3m jobs at risk.

“If not addressed, large debt burdens could stifle the recovery, threatening jobs and constraining business activity and investment,” Marshall said.

The BCC called for “innovative” solutions, such as student loan-style repayment plans linked to revenue. Companies also support refinancing their loans on much longer timescales, the BCC said.

READ MORE: Manufacturers call for furlough scheme extension

The banking industry has called for the government to set up a “UK Recovery Corporation” that would hold and manage Britain’s COVID-19 corporate debt. However, the Chancellor is said to be reluctant to pursue the idea, according to the Financial Times.

The BCC said many businesses would likely need continued support in the form of loans and flexible financing in the coming months.

“Over the coming months, government, regulators and banks must work together with business communities to find solutions that help firms repay coronavirus loans sustainably and access the support and services they need at this challenging time,” Marshall said.