Bank of England: One-Third of UK SMBs ‘Highly Indebted’

England’s central bank has issued a new report warning of a rise in small business failures in the U.K. by the end of 2021, saying that a third of such businesses in the nation are highly indebted.

That’s more than double the amount since before the COVID-19 pandemic, leading the Bank of England (BOE) to warn of possible fallout from higher risk-taking and to caution banks to be more prudent when it comes to digital assets, the Financial Times reported on Friday (Oct. 8).

According to the bank, SMBs, many of which hadn’t borrowed before — and some of which would not have met lending criteria before COVID — made up two-thirds of the £79bn increase in U.K. corporate debt between the end of 2019 and the first quarter of this year.

The BOE also found that 33% of SMBs held debt levels of more than 10 times their cash balances, a nearly 20% increase from before COVID. The percentage of businesses with high debt compared to cash balances and monthly inflows rose from 3% to 10% in the same period.

“Although debt appears affordable in the near term, insolvencies are likely to rise from 2021 Q4 as government support is withdrawn as planned,” stated the BoE’s Financial Policy Committee, noting that high arrears were not a “significant risk” to the country’s banking sector.

Britain’s employee furlough support program expired at the end of September, while the government’s most generous support loans — part of the Bounce Back Loan scheme — were phased out in March and replaced with the Recovery Loan Scheme, the Financial Times said.

Read more: UK Banks Anticipate Avalanche of Firms Extending BBLS Terms

The Bounce Back Loan program was designed to give loans of up to 50,000 pounds to SMBs to help them stay afloat during COVID.

As PYMNTS reported in May, banks in England loaned more than 46 billion pounds to SMBs through the Bounce Back Loans program since it was launched in May 2020. Roughly 42,000 businesses applied for extensions to their loan terms earlier this year.