Paying off debt is preventing half of all SMEs from investment and growth, Lloyds Bank warns
More than half of small and medium sized enterprises are held back from investing in itself to grow for the future as funds are taken up by debt repayments.
The warning comes from Lloyds Bank, which said this morning that even though the debt repayments are affordable for most SMEs, servicing the debt does prevent many businesses from growth.
The bank singled out a range of reasons why many businesses experience barriers to growth over the next five years.
Top of these is a lack of profit (cited by 29 per cent), followed by high running costs (25 per cent). Around a quarter (24 per cent) are concerned about regulation and legislation impacting their prospects, while 15 per cent have concerns about problems managing cashflow.
Interestingly, despite a big increase in the amount of borrowing by businesses since the start of the pandemic, only 11 per cent of SMEs indicated they are worried about their current level of business debt, the bank found.
The research, which polled SME business owners and decision makers right across the UK, found of those who are worried about debt, the main concern isn’t the ability to make repayments (just 16 per cent).
“The onset of the pandemic forced many small businesses to urgently seek new borrowing, often for the very first time. The various government-backed schemes in particular proved to be a vital source of funding at a time of huge uncertainty,” said Gareth Oakley, Managing Director of Business Banking at Lloyds Bank said.
“For other firms with existing debts, capital repayment holidays provided the necessary breathing space to navigate those early days of lockdown,” he added.
As the economy has reopened and begins to recover, it is reassuring that a relatively low proportion of small businesses are worried about their ability to make repayments on their debts.
Gareth Oakley, Managing Director of Business Banking at Lloyds Bank
However, “when it comes to future growth prospects, the longer-term impact of repaying those loans should not be underestimated. As the country seeks to recover, it is vital that businesses can access to the specialist support and investment they need to grow and prosper,” Oakley continued.
Despite these challenges, around a third (35 per cent) of SMEs say they wouldn’t consider approaching their bank if they were worried about business finances.
This was mainly because small businesses wanted to sort any problems out themselves (52 per cent) or they don’t believe their bank would be able to help (24 per cent).
A further 22 per cent would prefer to ask someone else they know for support, while 19 per cent believe the bank’s help would work out to be too expensive.
To Oakley, it is “a big concern” that around a third of small businesses would not consider speaking to their bank when worried about their finances.