A very small number of small and medium-sized enterprises (SMEs) are worried about their debt levels, new data has revealed, despite a sharp increase in the amount of borrowing since the start of the pandemic. Their main concern appears to be obstacles to future growth.
According to a study by Lloyds Bank (LLOY.L) Business, only 11% of them say they are worried about debt.
“As the economy has reopened and begins to recover, it is reassuring that a relatively small proportion of small businesses are concerned about their ability to repay their debts,” Gareth Oakley, general manager of corporate banking at Lloyds Bank.
“However, when it comes to future growth prospects, the long-term impact of repaying these loans should not be underestimated,” he said, adding that “as the country seeks to recovery, it is vital that businesses can access the specialist support and investments they need to grow and prosper.
Research found that among those worried about debt, 54% said that even though repayments are affordable, debt servicing will prevent the business from investing in itself to grow for the future. .
Only 16% said the main problem was the ability to repay.
Many companies see a number of barriers to growth over the next five years: the main one is lack of profit (29%), followed by high operating costs (25%).
About a quarter (24%) are concerned about regulations and legislation impacting their outlook, while 15% are concerned about cash flow management issues.
Read more: UK manufacturing growth slows as costs rise
Despite these challenges, around a third (35%) of SMEs say they would not consider contacting their bank if they were worried about their business finances.
This was mainly because small businesses wanted to sort out their problems on their own (52%) or didn’t think their bank would be able to help them (24%).
Another 22% would prefer to ask for help from someone else they know, while 19% think help from the bank would be too expensive.
“It’s a big concern that about a third of small businesses wouldn’t consider talking to their bank when they are worried about their finances,” Oakley said.
“A lender can provide advice on business plans, growth goals, entering new markets, balancing competing priorities and more.
He said if a business is in financial difficulty, the best thing to do is to contact their bank as soon as possible.
There are a variety of options that can be put in place, including refinancing, payment holidays, business overdrafts, and loan consolidation.
The report also showed that less than one in 10 SMEs (9%) now believe their business is at risk of shutting down due to the impact of the pandemic.
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