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British SMEs particularly threatened by the coronavirus crisis

Published on July 13, 2020 - 2 mins reading time
Bank watch
British gross domestic product is set to shrink by more than 10% in 2020, according to the Organisation for Economic Co-operation and Development (OECD). Small businesses have been particularly hard hit by the crisis, and several hundred thousand could go bankrupt this year, according to the banks.

41,000 Covid-19-related deaths in the UK

The UK recorded the worst death toll in Europe, with 41,000 deaths and a total excess mortality of over 63,000. According to several specialists, the main explanation lies in the fact that containment was introduced too late, on March 23.

In economic terms, this shutdown has resulted in a historic recession. The OECD expects GDP to fall by 11.5% in 2020, on a par with Italy and France. All sectors of the British economy have been affected (construction, industry, services, etc.). Foreign trade has not been spared, with both exports and imports falling. Economists now expect GDP to collapse by up to 35% in Q2.

Half of UK SMEs have used the EMP

Nearly 300,000 British small businesses have taken out state-guaranteed loans to cope with the coronavirus. The UK (34.8 billion euros) thus ranks behind France (93 billion euros granted to 490,000 businesses) and Spain (63.1 billion euros). Loans of up to £50, 000 (" Bounce Back Loan Scheme "), which are 100% guaranteed, were the most popular, with £23.1 billion lent.

Interviewed by the Financial Times, several bank executives report that 40-50% of borrowers, who received an average of £30,000 each, may never repay what they owe. While the banks involved in the EMP are protected by the state guarantee, they are concerned about the potential legal action they may have to take against defaulting companies, especially since at the time the loans were granted, it was suggested that they ease their checks on applicants' profiles in order to speed up disbursements.

A "bad bank"-type structure envisaged

Several players are calling for the creation of a "bad bank" to ensure that institutions are able to lend during the recovery period. Sajid Javid, former finance minister under Boris Johnson, is proposing to lighten the balance sheets of banks that commit to continuing to lend to businesses and support the economy.

For its part, the Bank of England warned banks in early May that they would only exacerbate the situation by trying to stem their losses and reducing lending.