Business borrowing bounces back after support schemes ended

Business borrowing has bounced back after the pandemic as banks have increased their lending at the end of Government support schemes.

The lending increased by £12 billion to £533 billion in the nine months to the end of May this year.

The sharp increase follows a marked fall at the end of the Coronavirus Business Interruption Loan Scheme (CBILS) and the Bounce Back Loan Scheme BBLS, according to research by debt advisory specialist ACP Altenburg Advisory (Altenburg).

Loans are underwritten by the Government

Altenburg says that the uptick follows a £7 billion drop in lending in just two months following the end of Government guaranteed loan schemes in March 2021.

Those loans meant that the Government would underwrite certain losses incurred while the schemes were in place.

Since the end of the schemes, the banks had taken a more circumspect approach to lend, but this began rising again in September 2021, despite the cost of living crisis and uncertainty over the war in Ukraine.

Majority of lending to SMEs

Borrowing by SMEs made up the majority of pandemic loan lending between April 2020 and May 2021, representing 61 per cent of total lending during this period.

Will Senbanjo, Partner at Altenburg, commented: “Businesses will be glad to see banks have started increasing lending to UK businesses following the removal of the CBILS and BBLS guarantees.”

“Those government-backed schemes were vital for keeping the flow of lending going during the pandemic but once they ended, bank funding was harder to obtain for several months.”

How have interest rate rises affected loans?

Despite recent steady rises in interest rates, the survey shows borrowing is still seen as affordable.

Despite the Bank of England base rate standing at 1.25 per cent, they are still at historically low levels in comparison to just before the 2008 financial crisis, when they stood at 5.75 per cent.

With interest rates still competitive, the opportunity for businesses to make debt-funded acquisitions remains strong.

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