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One in 10 companies that borrowed during the COVID-19 crisis is involved in bankruptcy due to the debt burden.
The British Chamber of Commerce (BCC) and TSB Bank said Tuesday that a survey of more than 500 corporations found that the maximum corporations in debt from the crisis feared it would damage their long-term prospects.
Companies have borrowed more than 50 billion pounds ($64 billion) from government-backed lending systems since March.
The BCC stated that this cash is important for the survival of many companies; however, after a historic collapse in UK GDP and with an expected slow recovery, many small and medium-sized enterprises are now afraid of being outperfied by their debt.
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“As many companies still face reduced demand, depleted money reserves, and persistent uncertainty, ambitious responses will be needed to prevent thousands of companies in the UK from falling into an unsustainable debt spiral,” BCC Executive Chairman Adam Marshall said in a statement.
42% of businesses surveyed through BCC and TSB borrowed from government-backed programs, such as the Bounce Back loan program and the coronavirus disruption loan program.
Nearly two-thirds of those in debt said they now believe that would have a negative effect on their business. One in ten are afraid to go bankrupt because of the debt burden.
The banking sector estimates that up to 35 billion pounds of COVID debt can be unsustainable. A report published in July estimated that 250,000 companies were in danger of collapse, endangering 3 million jobs.
“If not resolved, the debt burden can stifle recovery, threaten jobs, and limit industry and investment,” Marshall said.
The BCC called for “innovative” solutions, such as income-related student loan plans. Companies are also supporting the refinancing of their loans over much longer periods of time, the BCC said.
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The banking sector asked the government to create a “UK Recovery Corporation” that would maintain and manage british COVID-19 debt. However, the chancellor would be reluctant to follow the idea, according to the Financial Times.
The BCC stated that many companies would probably like to continue in the form of loans and flexible financing in the coming months.
“In the coming months, government, regulators, and banks will have to work with commercial network paints to find answers that will help companies make sustainable repayments of their coronavirus loans and access the help and facilities they want in those difficult times,” Marshall said.