Small business loans are becoming harder and more expensive to get in the United Kingdom.
The Financial Times (FT) reported Thursday (Dec. 29) that less than half of small business loan applications in the U.K. were successful during the third quarter of 2022. Before the pandemic, nearly two-thirds of applications were successful.
In addition, the interest rates on the loans that were offered to small businesses have risen — with nearly a third of such loans having an interest rate of 10% or higher, according to the report.
“Many small firms now are in a highly precarious position, carrying debts from the pandemic, with the Bank of England raising the base rate, and with funding options getting scarcer and costlier,” Federation of Small Businesses (FSB) National Chair Martin McTague told the FT.
This comes at a time when U.K. small businesses are carrying more debt — an additional £36 billion (about $43 billion) — than they were before the pandemic. They had taken out loans — many for the first time — in order to survive the pandemic, according to the report.
The challenges are also happening as two-thirds of small businesses plan to make investments before 2024, the report said.
To help remedy this situation, the FSB is lobbying the government to boost tax credits for research and development, introduce an incentive for capital investment and expand state-backed finance plans for small businesses, according to the report.
“As a country, we cannot afford to have a repeat of the post-crisis credit crunch scenario, where the dreams of thousands of entrepreneurs and business owners were crushed by a withdrawal of finance options, leaving them unable to continue, and deepening the U.K.’s economic woes,” McTague said.
As PYMNTS reported Dec. 20, the increased cost of borrowing coincides with rising operational expenses driven by inflation. That, and the U.K.’s declining consumer sentiment, combine to paint a bleak picture for the country’s small businesses.
For instance, the Bank of England reported that corporate insolvencies have risen above their pre-COVID levels and are expected to rise further over the coming quarters. In the third quarter of 2022, the insolvency rate stood at 46 per 10,000 firms.
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