Analysis of the Bank of England’s data in Ebury’s quarterly SME Borrowing Tracker shows that debt repayments halved in Q3 2023 compared to the previous quarter but SMEs are continuing to pay down the significant debt pile accumulated through the pandemic.

SMEs have accelerated debt repayments amid the soaring cost of borrowing as interest rates have risen in the past two years, yet there are now signs that this is beginning to slow. SMEs repaid £3.5 billion in Q2 which had more than halved (53% decrease) compared to the £1.6 billion paid in Q3 albeit still representing a significant net repayment.

It means that the total amount outstanding has fallen by 13%, or £81 billion, from its peak of £646bn in Q1 2021 to £565bn in Q3 2023 with SMEs making net repayments of £7.3 billion over the first three quarters of 2023 alone. In stark contrast, net borrowing of £44 billion was accumulated in 2020 as businesses sought financial help to survive the unprecedented economic restrictions.

The majority of SME lending was provided through the government-backed Coronavirus Business Interruption Loan Scheme (CBILS) schemes, of which Ebury was an accredited lender. The Government’s own figures show that £25.9 billion was loaned out to around 100,000 firms under the CBILS scheme – under a third (30%) of CBILS facilities have been repaid.

That business support was launched amid a broader package of help including additional loans, the Bounce Back Loan Scheme, capital repayment holidays, extended overdrafts and, asset-based finance.

Phil Monkhouse, Head of Sales at Ebury, commented: “The pandemic forced many SMEs to borrow significantly to survive the unprecedented restrictions, and this is visibly reflected in the over £40 billion of net debt SMEs accumulated through 2020. 

“While easing restrictions saw businesses throw open their doors to consumers, it also drove inflationary pressures and a consequent ratcheting up in interest rate levels. This increased the price of borrowing and left many businesses with high levels of debt exposed to increasing costs at the worst possible time.

“It is little surprise therefore that we saw SMEs accelerate net repayments as they look to rid themselves of expensive debt in order to thrive and survive in an uncertain economic environment. More recently, these payments have slowed and are perhaps a reflection that the interest rate hiking cycle appears either to be finished or nearing a conclusion.

“The total outstanding balance owed by SMEs is also starting to approach pre-pandemic levels which suggests that businesses may be happy with existing levels of borrowing despite the radically changed macro-economic environment.”