Act now to avoid “small business credit crunch”, firms urge, as value of emergency loans top £65bn

Press Releases 26 Dec 2020

FSB publishes its latest report on small business access to finance.

  • New Federation of Small Businesses (FSB) research shows unmanageable debt levels soaring among firms
  • UK’s largest business group calls on Government to intervene urgently to protect viable businesses with extension of grace period for emergency loans and VAT deferrals
  • More than half of those carrying debt believe conversion of loans to tax liability would help their business

FSB’s latest policy paper, ‘A Fighting Chance’, shows that the proportion of small firms carrying some form of debt has risen from just over half (56%) to more than three quarters (69%) as a result of the Covid-19 pandemic, with the share describing their debt as “unmanageable” up from 13% to 40%.

Small firms carrying debt when the Covid-19 crisis struck were more than twice as likely to have taken on new debt (48%) than those with no pre-existing facilities (23%).

Those that have had to significantly adapt to survive this year’s disruption were considerably more likely to have taken on fresh borrowing (45%) compared to those who have not been required to changed their business models (30%).

FSB’s new data also highlights the concerning and continued dependence on personal finance products within the small business community. Close to half (47%) of those carrying debt are using such facilities, including personal credit cards, overdrafts or loans, to support commercial operations.

Repayments on the £65 billion of debt that has been issued through the Government’s emergency loan programmes will start to fall due in the Spring.

Of those small businesses carrying debt, more than half (56%) believe the option of converting facilities into a tax liability would benefit them. For those that describe their debt level as ‘worrying’ or ‘significant’, the figure rises to almost two thirds (63%).

With the deadline for Bounce Back Loan Scheme (BBLS) repayments fast-approaching, the UK’s largest business group is calling on the Treasury to:

  • Extend the VAT payment deferral window and grace period for BBLS facilities to March 2022.
  • Facilitate extension of the BBLS Pay As You Grow model, which allows borrowers to extend the length of the loans, make interest only payments and request repayment holidays, to debt facilities outside of emergency schemes.
  • Consider a range of innovative approaches to the future of emergency loan facilities, including conversion to tax liabilities and Employee Ownership Trusts.

FSB National Vice Chair Martin McTague said: “Hundreds of thousands of viable small businesses have taken on sizeable debts to see them through to the other side of the Covid crisis. With emergency loan repayments fast-approaching, and festive trade hugely disrupted, we need the Government to intervene swiftly to avoid a small business credit crunch in the Spring.

“Debt levels are spiralling among viable firms, hampering their ability to provide the investment, hiring and innovation needed to bounce back from this year’s severe recession. Those that have adapted and innovated to survive are often bearing the biggest debt burdens. Unless we act now, we risk destroying the businesses of tomorrow before they’ve even had a chance to get off the ground.

“Come January, firms will be ladened with debt and hurtling towards repayments after a tough December, just as emergency support schemes are winding down. Many will be fearing for their futures, questioning whether it’s worth pushing on, even if they know their firm will be successful in the long-term.   

“They need hope now. That’s why we’re urging the Government to extend some of the very welcome support measures it’s put in place since March – starting with VAT deferrals and the grace period for bounce back loans.

“Over the longer-term, we have to keep all options on the table where emergency loans are concerned to ensure they ultimately deliver value. Implementing a model whereby firms start repaying debt when they’re making a profit again could mark a positive way forward, as could getting employees more involved in the ownership and running of firms.   

“Let’s not forget that small businesses which have innovated to stay afloat have taken on a lot of emergency debt. We have to avoid a scenario where we destroy the great, innovative businesses of tomorrow by failing to help them today.”    


Notes to Editors
1) FSB surveyed 1,306 small businesses between 24 July and 5 August.
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Media contact

Matt Dickinson

Matt Dickinson

Deputy Head of Media & Communications

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07525 801773

About FSB

As the UK’s largest business support group, FSB is the voice of the UK’s small businesses and the self-employed. Established over 40 years ago to help its members succeed in business, FSB is a non-profit making and non-party political organisation that’s led by its members, for its members. As the UK’s leading business campaigner, FSB is focused on delivering change which supports smaller businesses to grow and succeed.

FSB offers members a wide range of vital business services, including access to finance, business banking, legal advice and support along with a powerful voice in Government. Each year FSB also runs the UK’s Celebrating Small Business Awards. More information is available at You can follow us on twitter @fsb_policy and on Instagram @fsb_uk.