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Concern for UK SMEs as Poor Cash Flow, Low Savings and New Loans are Focus of 2021

There have been conflicting reports for the UK SME sector recently, but most admit that the economic situation for SMEs is worrying. While there are glimmers of good news, businesses seem more likely to apply for government-backed loans as current funds run low.

The Chancellor of the Exchequer, Rishi Sunak, detailed the onset of the economic emergency facing the UK at last week’s spending review. This comes at a time when demand for the government-backed CBILS loans is set to soar by UK businesses as their Bounce Back Loans dwindle and cash flow dries up, according to the latest MarketFinance report. Of the businesses that applied for a Bounce Back loan (up to £50k) during the summer, they now have only £3,150 remaining and estimate that will see them through to the end of this week.

Since the announcement of the second national lockdown measures, a staggering 84% of businesses will be applying for CBILS loans. They indicated this would be used to protect them over prolonged lockdown measures and in anticipation of more bills, taxes or duties to pay. In addition to this, more businesses know they can refinance their Bounce Back Loan with a CBILS loan – up from 68% two months ago to 83% today.

Anil Stocker, CEO of MarketFinance, commented: “The stop-start government announcements on lockdowns haven’t helped UK businesses. However, they continue to fight on and will, naturally, require more funds to bolster them through a tricky winter period. Looking ahead, ultimately, it will be the private sector which will enable the Chancellor to get the country’s finances back under control, so business leaders will be looking for some pro-growth, pro-enterprise stimulus measures in time to come.”

Two in five businesses (42%) are still waiting to be paid for work completed since the first lockdown. In June 2020 they were, on average, waiting for £148,917 which came down to £33,906 in September, but there is still £27,134 outstanding to them.

Two-thirds of businesses reported waiting longer to be paid. One in five (20%) reported their payments terms from customers have been renegotiated to 3 months or more. Businesses in Wales and those in the leisure, marketing and telecoms sectors have been the hardest hit, in terms of longer waiting times to be paid.

As businesses get paid later, half (49%) are withholding payments to suppliers fearing cashflow worries and future economic shocks. Meanwhile, a third (35%) reported they are intentionally stockpiling cash reserves to safeguard their companies over the winter trading period.

Over a quarter (27%) of small businesses felt they would not survive to see 2021 based on their current cash balances and anticipated a reduction in revenue over the winter months. A further 34% were uncertain, but if cash flow improved and they had an exceptional end to the year, they could make it.

Only 27% were certain about survival in 2020 with older business owners and those based in London and the south-east were the most optimistic.

Glimmer of hope

Yet other reports released this week show a glimmer of hope. New research from Hitachi Capital Business Finance found a significant proportion of small businesses are considering finance to enact their plans for 2021, as confidence gradually returns. Looking ahead to 2021, just over half (56%) of small business owners said they were considering taking finance for some of the plans they had set for 2021 – slightly up on the proportion in last year – 53% (Q4 2019).

This comes as confidence among small businesses has steadily been returning since the outbreak of coronavirus. In Q4 2020, over a quarter (27%) said they expected to grow in the next three months, up from 13% in Q2 2020. Meanwhile, the proportion expecting to scale back fell in this quarter, also to 27%, down from 59% in Q2.

The top reasons businesses were considering borrowing money included increasing headcount (29%), launching new products and services (27%) and running an advertising campaign (22%).

Interestingly, comparing the results from last year, the proportion of businesses using finance to move to larger premises fell (from 20% to 16%), as working from home became the norm this year. This was particularly the case for businesses in the finance sector (falling from 24% to 9%) but also the hospitality sector (falling from 24% to 11%). By contrast, however, the proportion of businesses in the retail sector considering finance to move premises increased from 19% to 34%, as these businesses adapt to the changing dynamics within the retail space and online demand.

Meanwhile, the number of businesses using finance to launch into new segments in 2021 slightly increased on a year ago (from 17% to 19%), reflecting the trend in businesses adapting and pivoting in the new environment. Again, this was most apparent in the hospitality sector (rising from 7% in 2019 to 18% in 2020), but also in the medical sector (rising from 13% to 27%).

The research also found that online businesses were more confident about growth in the next three months, and more likely to have plans to borrow money than offline businesses. A third (34%) of businesses that operated predominantly online said they expected to grow in the next three months, compared with 20% of largely offline businesses. Plus, 61% of online businesses had plans that involved financing, compared with 55% of offline businesses.

Online businesses were found to be twice as likely to be using finance to help launch new products (16% vs 9%), pitch for major accounts/new business (12% vs 6%), or launch into new segments (17% vs 8%), as offline businesses.

Joanna Morris, Head of insight at Hitachi Capital Business Finance commented: “Despite a bruising year for small business in the UK, confidence levels are starting to return among some sectors, not far off levels we saw before the outbreak of the pandemic. Business owners’ appetite for risk appears to be increasing, with plans being made that have been shaped by their experiences during lockdown. This flexibility and adaptability is precisely the advantage smaller businesses have over their larger competitors, and we are seeing signs this is being used in this research.

“The level to which businesses are embracing technology is a key factor in their confidence, and their plans for the next year. Confidence levels between businesses that have embraced technology and those that haven’t have been dramatically different throughout the events of 2020, and we continue to see differences with plans for 2021. The pressure for businesses to embrace technology continues to mount, as those that have already reaped the benefits of their competitive advantage. The case for investing in a business’ tech agility has never been stronger.”

Savings still an issue

Despite the positive outlook, there are more worrying signs for SMEs this winter, and with forecasts that the pandemic could last up to 17 months, SMEs would need an extra £88k to survive the pandemic.

Nucleus Commercial Finance revealed that a quarter (23%) of SMEs in the UK had little or no savings before the pandemic hit earlier this year, including 42% of sole traders, according to new research.

The research showed that many UK SMEs are deeply concerned about the lasting effects of COVID-19 on their business, with only two in five (39%) believing that they have enough savings to carry their business through the remaining impact of the pandemic, while 14% think they do not.

Amongst those surveyed with savings, almost £72k of their savings, on average, have been spent since the pandemic started, with an estimated £87,579 extra needed to get them through it. Although medium-sized businesses have spent more than double that (£149,101), they expect to spend a similar amount again (£154,652) by the time they return to pre-Covid-19 levels of business.

On average, SMEs had nearly £200k (£192,511) in savings prior to COVID-19. Unsurprisingly, this grows with company size, with sole traders (£50,536) having less savings than medium-sized businesses (£352,773).

Research found that SMEs’ saving pots took a considerable hit as a result of the pandemic with four in five (80%) saying they had to dip into it. This was most commonly to pay for overheads (34%) to keep the business afloat, followed closely by paying staff (27%), getting premises COVID-19 secure (21%) and getting their business online (13%).

SMEs fear their businesses will be affected by COVID-19 for up to 16 months and that the recession caused by the pandemic may last a little longer than 17 months.

Chirag Shah, CEO, Nucleus Commercial Finance, said: “The effects of the pandemic and the subsequent economic slowdown has clearly had a significant impact on the UK’s SMEs. Not only has it brought about operational challenges, but the loss of income has been devastating for them. Those businesses that have successfully weathered the storm now face further challenges – needing significant capital to ensure that they can continue to operate.

“During these uncertain times, business owners should rest assured that there are financing options available to suit their needs, while achieving their goals and helping them future-proof their business. Together, we can help build a better future for SMEs, ensuring they are equipped to tackle further challenges, boost performance, and ultimately stimulate our economy.”


  • Gina is a fintech journalist (BA, MA) who works across broadcast and print. She has written for most national newspapers and started her career in BBC local radio.

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