Monday, January 17, 2022

The financial burden on small businesses increases as loan defaults increase

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Lenders expect default rates for small and medium-sized businesses to increase in the first quarter, while default rates for large businesses would likely stay flat

A survey of lenders published today by the Bank of England found that while fewer midsize businesses have defaulted on corporate debt and the number of large business defaults has remained constant, small businesses are bearing the brunt of financial distress.

The number of small businesses that have defaulted on loan repayments has increased in the three months ended November, lenders reported.

The central bank said lenders had reported that they expected default rates for small and medium-sized businesses to increase in the first quarter, while default rates for large businesses were likely to remain unchanged.

Marcus Wright, managing director of Bolton Business Finance, said his company had seen an increase in small businesses seeking funding, particularly in the hospitality sector, in the last three or four months of 2021.

“Many SMEs have started paying back Covid support loans and want to increase their cash flow with additional funding,” he added.

“Demand for the government sponsored Recovery Loan Scheme is also very high, with many being drawn to the reasonable interest rates and no personal guarantees for directors below £ 250,000.

“Still, the SME finance landscape in 2022 will be very challenging. Anyone anticipating cash flow problems needs to be ahead of the curve. “

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