Small and medium sized business owners have expressed concern about debt taken on during the coronavirus pandemic.

One survey from EY found that around one in three UK SMEs are worried that they may never be able to repay loans taken on during the crisis.

A separate poll carried out by Begbies Traynor found that more than half of UK businesses were carrying ‘toxic debt’ that they might struggle to repay over the next year.

Research from Lloyds painted a slightly different picture. They say that only 9% of small businesses were worried about closure because of Covid loans, but found that many owners are concerned about growth because of loan repayments and other factors. 

The vast majority of small and medium-sized companies were negatively affected by the pandemic and millions took on government-backed loans in order to stay afloat.

Loan repayments, together with other factors like rising costs, labour shortages and supply chain disruption are now threatening to upset what is, for many companies, a fragile recovery.

EY found that recovering from the pandemic is now a ‘main challenge’ for 51% of SMEs, while 35% fear they might not be able to repay what they owe to creditors.

By analysing tax returns filed so far in 2020, Begbies Traynor concluded that 52% of companies would struggle to pay their debts in the next 12 months.

The firm also expected the percentage of ‘toxic debts’ – which have a low chance of being repaid – to increase, with more zombie companies created as a result.

Lloyds discovered that more than half of SMEs are held back from investing for growth because so much of their funds is tied up in debt repayments.

Firms surveyed by the bank cited a wide variety of barriers to growth, including a lack of profit (29%), high running costs (25%), regulation and legislation (24%) and cash flow (15%).

Tom Fox, Licensed Insolvency Practitioner at Umbrella.UK Insolvency said: “Covid has hit businesses of all sizes. But in many industries it’s the SMEs that have suffered most and many have turned to financial support in order to survive.

“While the worst effects of the pandemic are now hopefully behind us, the economic recovery is still in its early stages. I’m confident that the majority of struggling small businesses will recover, but it’s vital they have a back up plan in case things do go wrong.

“If you’re worried about your company’s finances, seek professional advice at the earliest opportunity. This will give you many more options in the medium and long-term future.”

For more information about company insolvency solutions, speak to a member of the Umbrella.UK team today. Call: 0800 611 8888.