South West business owners turn to credit cards and overdrafts as financial pressures grow amid pandemic

West Country firms are becoming increasingly reliant on overdrafts and credit cards amid the Covid pandemic.

Growing financial pressures caused by the crisis are forcing business owners in the region to turn to costly forms of borrowing, a new survey by Business West has found.

Some 40% of the 550 companies questioned reported a higher level of debt than a year ago, while 43% had six months or less of cash reserves remaining.

A total of 22% used overdrafts to pay for business costs while 19% relied on credit cards - sources of finance that are more expensive than government-backed emergency finance. Another 11% turned to friends and family for help.

Meanwhile, only 16% opted for the government-backed Coronavirus Business Interruption Loan Scheme (CBILS) and 28% made use of the Bounce Back Loan Scheme (BBLS) – a government-backed initiative offering favourable interest rates and flexible repayment terms, but this has now ended.

Business West’s managing director Phil Smith said it was “concerning” that business owners were turning to costly forms of borrowing to solve cash flow issues.

He said mounting debts could stymie growth in the region and prove a “long-term drag” on the South West’s economy.

“We are worried about small businesses and the self-employed’s access to suitable finance during the recovery period,” he said.

“At the end of March, the BBLS and CBILS closed, and CBILS was replaced by the successor Recovery Loan Scheme.

“However, this is available via commercial bank lending and is only government guaranteed for 80% of the loan.

“Our findings highlight a looming finance gap for smaller firms, given the particular finance needs of smaller businesses, who appear to not be utilising CBILS, perhaps because it is harder to access this more formal bank form of financing. We think further government finance schemes for these smaller firms may be needed.”

Vikki Little, the managing director of Bristol-based marketing agency Feisty Consultancy, said the last 12 months had been a “rough ride".

“During the first lockdown at least, the banks were helpful in reducing and removing fees,” she said. “But this stopped some months ago and hasn't been reinstated, despite the fact that the situation is now worse for many businesses.”

More than 50% of companies reported that turnover, profitability and cash flow had been negatively impacted as a result of the pandemic - with the figure standing at 60% for businesses in the retail, tourism, food and drink, and consumer services industries.

According to the survey, many firms have delayed growth plans and are experiencing reduced profit margins.

But despite the pain of the past 12 months, businesses are remarkably upbeat regarding the future prospects of the UK economy, Business West said.

Confidence among firms in the region lifted following the government's announcement of a roadmap out of lockdown in England.