Lending to U.K. small and medium-sized businesses reached record levels in 2020 as companies sought external financing to weather the impact of the COVID-19 pandemic, a new report from the British Business Bank PLC shows.

The annual Small Business Finance Markets report said gross bank lending to SMEs surged 82% year over year to £103.7 billion, the highest level since the data series began in 2012. The report found that 45% of SMEs applied for external financing in 2020, compared to 13% in 2019 and 2018. The funding included government grants and guaranteed bank loans made available to businesses during the pandemic.

The record borrowing in 2020 raised total outstanding SME bank debt to £213 billion from £168 billion in 2019.

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The report warned that while smaller businesses as a whole do not appear overindebted, many individual companies and certain sectors may face financial difficulties in 2021 given the continuing uncertainties regarding the pandemic. About 37% of hospitality businesses said they are concerned about repayment of loans, reflecting the impact of successive lockdowns and restrictions on the sector.

The number of SMEs accessing grants rose to 31% in 2020 from 2% in 2019, according to the study. It also found that bank deposits rose to a record high of £256.2 billion in November 2020, reflecting the disproportionate effect of the pandemic on SMEs according to size and sector, while overdrafts and credit card debt fell.

The report added that both bank and nonbank lenders have sufficient capital to fulfil demand for financing.

Earlier in March, U.K. Chancellor of the Exchequer Rishi Sunak said the government will launch a Recovery Loan Scheme to provide state-backed loans to businesses. Companies will be able to apply for loans between £25,000 and £10 million through the end of 2021, with the government providing an 80% guarantee to banks for such loans. This will replace three earlier schemes through which banks had lent nearly £73 billion as of Feb. 21, figures from the British Business Bank show.