FINANCE

FIRMS SEEK FINANCIAL HELP as COVID crisis squeezes cashflow

Record levels of smaller businesses sought external financial support last year, with lending to SMEs topping £100 billion.

❛❛In Q3, 49% of zero employee firms reported a fall in turnover over the previous 12 months compared to 38% of businesses with 50-249 employees.❜❜

Almost half (45%) of UK SMEs applied for some form of external financial support in 2020, according to latest research from the British Business Bank – a significant rise from the 13% of firms that did so in 2019.

This sparked a huge rise in bank lending to SMEs, which increased 82% to £104 billion. Nearly nine in ten firms (89%) that sought finance cited the impact of COVID-19 as the reason why they did so. Of these businesses, 75% needed finance to help with their cashflow. On a more positive note, 8% sought finance, at least in part, to pivot or change their business model, while 7% wanted additional funds to invest in the digital capability of their business.

The majority of sectors saw between 20% and 30% of their SME population take up a loan during the pandemic, and British Business Bank data shows that across both the BBLS (Business Bounce-back Loan Scheme) and CBILS (Coronavirus Business Interruption Loan Scheme), the majority (59%) of SMEs accessing governmentbacked finance borrowed more than 20% of their reported turnover. Turnover decline rates for businesses of all sizes were over three times their respective prior five-year average, illustrating the scale of disruption across all businesses. The smallest SMEs experienced the largest declines in turnover. In Q3, 49% of zero employee firms reported a fall in turnover over the previous 12 months compared to 38% of businesses with 50-249 employees. The report also found that record cash balances on the one hand and increasing debt levels on the other indicate that a sizeable number of smaller businesses will be in a position to borrow further in 2021 and a sizeable number are likely to struggle with debt repayments. High levels of debt, and in particular the number of businesses with higher debt-to-turnover ratios, suggests a potential drag on viable applications for finance in 2021. Looking forward to the rest of this year, the survey said that one third of businesses predicted they would shrink in 2021, with 4% expecting to close or be sold. Only one in five (21%) expected to grow, compared to 28% the previous year. Small firms (10-49 employees) and medium-sized businesses (50-249 employees) were most likely to expect to grow (35% and 38% respectively) compared to 21% of businesses overall. SMEs in business services (25%) and production (23%) were most optimistic about their prospects for growth over the next year, with businesses in construction and other services sectors least optimistic (both 17%).

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