The Recapitalisation Group, a panel of City bankers set up at the behest of the bank of England, estimates that SME businesses will be left with £90-£105 bn of unsustainable debt by March 2021.
Many SME businesses have made use of the much needed government support which has aided them through the Covid crisis by using the CBILs and Bounce Back Loan schemes. The concern is that these businesses now have an unsustainable debt mountain and are facing falling revenues.
There needs to be a mechanism which allows these SME companies to reschedule and restructure their debts which will provide essential breathing space. The panel concluded that there needs to be a focus on debt forgiveness, restructuring and the ability to convert some of the debt into equity or an equity-like instrument.
The government are proposing to reform the insolvency legislation but this is unlikely to be enough to prevent a spike in corporate failures during the second half of 2020.