UK businesses took out 50% more loans in a three month span than they did in the entirety of 2019, new figures from the banking industry show.
UK Finance, the lobby group for the UK’s financial services sector, on Tuesday said businesses borrowed £34.5bn in the second quarter of 2020 — 50% more than the corporate sector borrowed in the whole of last year.
Stephen Pegge, managing director of commercial finance at UK Finance, said the surge was driven by demand for overdrafts and government-backed coronavirus support loans.
“The demand for additional support was substantial,” he said.
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The government announced multiple loan programmes in the early months of the pandemic to help support businesses through the COVID-19 shutdown. Businesses have to date borrowed just over £57bn ($73.8bn) through the programmes.
UK Finance’s figures — which cover the period of April to June — will fuel fears about the debt burden on Britain’s corporate sector as it emerges from the crisis.
A report published in July and commissioned by UK Finance estimated that businesses had taken on around £35bn of unaffordable debt during the crisis. The report warned that over three quarters of a million companies could collapse as a result.
The government’s own internal estimates fear that losses on Bounce Back loans — the government’s biggest coronavirus support scheme — could be as high as 60%. That would equate to around £23bn of losses at today’s level of lending.
July’s UK Finance report, which was prepared by EY, called for the government to help manage the debt burden through a new state-backed entity that would help refinance the debt. The Treasury has so far resisted these calls, instead extending the repayment window for COVID support loans.
“The finance industry continues to work closely with government and regulators to deliver the support schemes alongside its usual assistance measures to help viable businesses as they plan for recovery,” Pegge said.
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