David Craik, journalist

There are many reasons to feel optimistic that some form of normal life is beginning to re-emerge from the pandemic. But for many SMEs it is hard to see the bright side.

The latest Financial Stability Report from the Bank of England found that SME indebtedness had risen by 25% between the end of 2019 and the end of 2020.

What that means in pounds and pence was illustrated by a recent report from former Iceland boss Bill Grimsey, which found that independent high-street retailers were now in debt to the tune of £2.3bn – rocketing from £500m pre-pandemic.


There is a considerable amount of debt now coming through. The worst thing you can do is nothing

The overall SME debt includes government support, such as Bounce Back Loans, business rates relief, tax deferrals and even personal loans to help keep firms afloat during lockdowns.

As the economy recovers and the creditors come calling, how can SMEs best repay what they owe without putting their futures at risk? What steps should they be taking?


According to Glenn Collins, head of technical policy & strategic engagement for ACCA UK, many businesses are not fully prepared for repayment.

‘There is a considerable amount of debt now coming through,’ Collins says. ‘The worst thing you can do is nothing and stick your head in the sand. But some are not aware of their options.’

He says the first step is to determine the best- and worst-case scenarios around cashflow to see what SMEs can or can’t afford to pay back.

Matt Howard, partner at chartered accountants Price Bailey, agrees: ‘We are telling our clients to do some cashflow forecasting. It is a bit of crystal ball-gazing in this climate, but cash is king. They need to identify any pinch points around debt repayment schedules. Do they have the turnover or resource to make those payments?’

If they do, then the best advice is to start paying off the debt either in one lump sum – depending on charges – or over the loan term. If not, then they need to look at alternative options.

Be upfront with landlords, declaring that if they demand arrears upfront, your business may not survive

Government loans

According to HM Treasury, there are no capital or interest repayments required for the first 12 months after taking out a Bounce Back Loan. However, after that period it will seek to collect repayments and charge interest.

One option for those struggling to pay is the government’s Pay As You Grow scheme. It allows borrowers to choose a 10-year term extension, up from six years, at the same 2.5% interest rate. The request can be made at any time during the term period.

Borrowers can also choose a six-month capital repayment holiday where they pay interest only or a six-month full repayment holiday of both capital and interest.

‘If there is another period when your business is in turmoil, such as a local lockdown, these can be really good options,’ says Collins. ‘However, you don’t want to fritter away these options or use them as a stop-gap. It needs to be for a significant reason.’

Rescheduling rental payments

In June the government stated that businesses that have had to remain closed during the pandemic and are unable to pay rent on their commercial property would continue to be protected from eviction. Outstanding unpaid rent would be ringfenced, with landlords working with tenants on options including waiving some of the total amount or agreeing to a longer-term repayment plan. The existing measures in place to protect commercial tenants from eviction were extended to 25 March 2022.

‘You need to speak to landlords early,’ advises Collins. ‘Be upfront with them, declaring that if they demand arrears upfront then your business may not survive. Try and reschedule payments.’

Rescheduling tax payments

If you are behind on your HMRC payments such as self-assessment, then you need to act. Get in touch with the HMRC to discuss affordable payment options, such as Time to Pay.

Honesty is key with both rent and tax negotiations.

Morlai Kargbo, managing director of accountants Moracle, says: ‘Understand where your income is coming in and where you can cut down costs. This can all be used in negotiations with creditors showing them that you can afford to pay.’


Grants can provide valuable funding to help restart a business following the pandemic and build up capital to repay debt.

One example is the Business Adaptions Grant Scheme aimed at supporting SME hospitality firms to adapt their premises to continue operating in a Covid-secure environment and generate income.

Recovery loans

It may seem counter-intuitive to take out another loan to reduce debt, but the government’s Recovery Loan Scheme can help your business get back on its feet and generate cash to pay down debt.

Up to £10m is available per business under the scheme, which is open until 31 December 2021.

Debt restructuring

SMEs could consider refinancing their debts on more favourable terms. ‘Looking at Bank of England statistics, we are seeing an increase in lending on normal commercial terms rather than through the government support schemes and a rise in repayments,’ says Stephen Pegge, managing director of commercial finance at UK Finance. ‘That is often a sign that people are swapping around and rebalancing their borrowing.’

Pegge suggests that SMEs should also consider seeking equity finance from angel investors or venture capital to help shore up finances. 'This will be important for scale-up companies,' he says.


Some SMEs will be unable to repay their debts no matter what options are available. ‘You have to be aware of when you come to the point that you’re flogging a dead horse,’ says Price Bailey's Howard. ‘You need to know when enough is enough, and consider the impact on your career if a liquidator looks at director conduct in a formal insolvency and finds that you carried on recklessly.’

Another exit option is a sale either to a trade buyer or private equity.

Further information

See guidance from ACCA on the support available to businesses