SMEs warned over Coronavirus loan scheme ‘debt bubble’

SMEs warned over Coronavirus loan scheme ‘debt bubble’

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As England is plunged into yet another lockdown, HM Treasury continues to make changes to its various financial schemes to protect the future of the country’s businesses during this difficult period.

Back in April, at the beginning of the COVID-19 pandemic, the government introduced a number of loan schemes with the aim of helping businesses to cope with the range of issues that the virus could have on organisations operations.

These included the Coronavirus Business Interruption Loan Scheme (CBILS), the Bounce Back Loan Scheme (BBLS) and the Coronavirus Large Business Interruption Loan Scheme (CLBILS). These loans offered financial support for businesses, including SMEs and larger corporations, that needed the help as the pandemic put operations on hold.

And many businesses up and down the country were quick to utilise the financial benefits of the scheme, with over 73,000 businesses receiving more than £17 billion from CBILS, as of October 2020.

This was alongside an additional £1.3 million from BBLS, equalling up to $40 billion of support from the government from April 2020.

And, as the pandemic continues to take hold over the country, chancellor Rishi Sunak has been forced to extend the deadline for applications for businesses looking to access the financial benefits of the various schemes. Due to end this month on the 30th November, the deadline has now been extended to 31st January 2021.

But, as more and more businesses continue to borrow and access finance more quickly through the range of support schemes put in place, financial experts have growing concerns over the implications this could cause to companies, particularly SMEs.

What many of these businesses are forgetting is that the options that are available are all loans – with the funding they receive needing to be repaid at a later date. 

And with the additional worry of interest being added a year after the scheme launched, as of April 2021, experts are concerned the support will in fact potentially cause a ‘debt bubble’ for more vulnerable businesses.

Both the Coronavirus Business Interruption Loan Scheme (CBILS) and Bounce Back Loan Scheme (BBLS) were introduced for small businesses to ensure they could stay afloat during the first lockdown.

But, as the second, more stringent, set of restrictions have come into play, experts are particularly concerned surrounding the banks’ willingness to encourage further debt through the government schemes.

Although the opportunity for further financial support has been provided through the extension of the loan schemes, it’s not to say that businesses should utilise this form of emergency support.

Small businesses continuing to access the scheme should be made aware that there are other forms of financial product that are available, as experts highlight that the Coronavirus loan schemes should only be utilised for emergency support.

For SMEs wanting to utilise the cash funded through the Coronavirus loan scheme to gain control over their short-term cash flow, businesses can instead look at alternative methods of controlling their finances.

A particular way in which SMEs can stay in control of their finances, without the need to access the loan schemes, is invoice factoring.

When working with an independent cash flow company, such as Peak Cashflow, a business can ensure their working capital is covered, as they take responsibility for the securing and collecting of invoice payments from customers.

Particularly during these unprecedented times, this service frees up invaluable capital for a business, providing access to a percentage of cash that is owed, before the customer has even paid their outstanding balance.

Businesses can also make the most of asset finance, as a way to borrow money to help them pay for physical assets that are necessary for them to complete their day job.

As the pandemic has had a huge impact across business operations, asset finance can help to ensure that a business can access the necessary tools, equipment and technology to continue to provide a service for their customers.

SMEs may believe that accessing the loans available to them through the Coronavirus support schemes will help bring a much-needed cash injection to their company. 

But, with banks and other lenders currently ramping up their interest rates, other options, like invoice factoring and asset finance, may mean for a healthier financial picture for the future.

MP’s are already concerned about the interest banks will start charging small businesses with in April 2021, so it’s important for SMEs to consider how they will repay the debt as we start to make a move back to some form of normality.

With an appropriate recovery process still in need of clarification from MP’s for struggling businesses forced to repay the debt in these unprecedented times, it’s important for SMEs to consider the other options available to them.

With funding options available to match the asset in question, it’s worth speaking with a professional cash flow expert to understand what type of funding is available to you.

If you’d like to discuss how we can help your business, please get in touch with our team on 0121 236 7575 or email us on and we’ll get back to you.