Business borrowing soars…
EY have published analysis suggesting UK businesses are set to borrow more than five times the amount of the previous 12 months as a result of Coronavirus.
Banks lent £43.2bn between January and August 2020, compared to £8.8bn lent in the whole of 2019.
Unsurprisingly, lending volumes reached a peak in March, and stayed high in April and May. Net Business lending fell in June, July and August, thought to be a result of businesses repaying precautionary loans that they later didn’t require.
For many businesses though, these loans were critical to survival according to EY and their borrowing levels are likely to remain at similar levels until 2022.
Bank lending to households has also been affected by the pandemic. Consumer credit demand is likely to reduce by almost 6% in 2020, as consumer confidence is hit. Between March and June 2020, net lending on Credit cards and personal loans turned negative for the first time in nine years, when £15.4bn of consumer credit was repaid. Since the end of Lockdown 1.0, lending has returned to a net positive figure, but remains lower than levels at the start of the year.
Mortgage lending across the year is expected to show annual growth of just over 3%, a dramatic recovery having fallen by 90% between February and May.
Dan Cooper, UK head of banking at EY, said: ‘Businesses are operating under increasing pressure, relying more heavily on bank lending than ever before, while on the flip side, consumers are sitting tight and borrowing far less than would normally be expected. This will naturally have an adverse effect on banks, especially as the potential for loan losses rise. The more positive news is that housing market activity has held up better than expected, with mortgage lending volumes set for reasonable growth despite the broader challenges facing the economy. However, exactly what impact the new lockdown restrictions and potential future virus control measures will have remains to be seen.’
If you’re concerned about meeting repayments against borrowing you have taken out in your business, please don’t ignore the problem.
Getting a clear grasp on your cash-flow will help, but there are other steps that can be taken to make life easier. Do get in touch if you’d like to know more.
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