44% increase in small business defaults

According to the Bank of England’s latest Credit Conditions Survey, this figure is expected to increase in the fourth quarter of the year. As for total unsecured lending, the figure is unchanged in quarter three, but is expected to increase in the fourth quarter. 

Default rates on loans to corporations, meanwhile, increased for small businesses, going up by 44%. It slightly decreased for medium-sized firms and remained unchanged for large companies. 

The bank does expect to see this increase for small and medium-sized businesses in the fourth quarter of 2021, and remain unchanged for large firms over the same period. 

Commenting on the news, Michael Mulligan, an insolvency partner at law firm Kingsley Napley, said: “Small businesses continue to be hard hit by the dual impacts of Covid and Brexit and by recent supply chain bottlenecks. 

“The Bank of England credit survey shows that small companies are increasingly defaulting on their loans. Many of these businesses are in crisis, with cash flow issues leading to an inability to service loans and pay suppliers. 

“There will inevitably be an increase in insolvencies and commercial disputes in the coming months as a result, particularly as temporary insolvency law measures and fiscal support also come to an end. 

“With the prospect of an interest rate rise on the horizon in addition, pressures on smaller businesses will only increase in quarter four. Company directors worried about their cashflows and how they will manage their money in the final third of the year should seek advice from relevant professionals sooner rather than later.” 

Lenders also reported that the availability of secured credit to households increased in the three months to the end of August 2021. Additionally, it expects the availability of secured credit to increase further over the next three months to the end of November 2021. 

Alongside this, lenders reported that the overall availability of credit to the corporate sector remained unchanged in the third quarter of 2021. Within this, the availability of credit to small and medium-sized businesses remained unchanged, but increased for large firms. 

Overall, corporate credit availability is expected to remain unchanged in the fourth quarter of 2021.