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Hung Out to Dry: SMEs need further support to stay afloat

By Scott Donnelly, Director of Board at CapitalBox

Ever since Boris Johnson announced his roadmap to easing lockdown restrictions earlier this year, businesses have been eager to reopen their doors to customers. Yet, delay after delay has dampened hopes on the return to complete normality. This isn’t just bad news for people across the country who are unable to enjoy the unrestricted social gatherings, plan holidays abroad or go clubbing, it has also struck small businesses hard.

Many small businesses in the hospitality and retail sectors enjoyed the taste of freedom, that others were only hoping to enjoy in just a few months’ time. In fact, in the first week of pubs, restaurants and non-essential retail being able to open their doors to the public it was estimated that spending was above pre-pandemic levels. Over the course of the pandemic Britons’ have amassed savings of £180 billion in their bank accounts, ready for the grand opening to splurge the cash! However, this optimism quickly turned sour.

With rising COVID-19 infections throwing the lockdown easing roadmap into disarray, the economy remains under pressure and SME’s road to recovery is delayed further. The brief sense of euphoria that businesses felt has turned into realism as costs continue to mount and revenues remain limited.

Removing the obstacles in the road to recovery
Since the easing of restrictions, the rapid vaccine rollout and continued support from the government, there has certainly been an increase in consumer confidence. In fact, the UK consumer confidence index rose to its highest levels since lockdown this March and was recorded as the largest monthly jump in almost a decade.

However, this was all before issues around the vaccine shortage and fears of a third wave this summer hit the headlines. Additionally, the end of June will call for businesses to end their reliance on the furlough scheme, business rates relief, and the suspension of wrongful trading liability. This is where small businesses need our help. From consumer spending, to continued support from government and the right loans to get them through what may feel like darker times still to come.

Financial lifeline during pandemic
Governments spotted early on the need to step in with immediate effect to help businesses through the national lockdowns. In a recent CapitalBox survey, we found that 31% of European SMEs applied for government support schemes, with the likes of the Coronavirus Business Interruption Loan Scheme in the UK and the ‘Corona Soforthilfen’ in Germany, being some of the most attractive choices.

The most popular source of funding, however, was retail financing, a form of loan set up to pay back in instalments to those with good credit ratings, which was the number one choice for more than half (55%) of small and medium businesses in Europe.

However, research also showed that one size didn’t fit all. One in five SMEs relied on credit cards (21%) and 11% turned to online loan providers, while a quarter of SMEs (24%) had to turn to the most traditional of funding, asking family or friends for financial support. This shows that when it comes to loans and schemes, variety of sources is key.

Bridge the cashflow crisis
As certain scheme such as furlough look to come to an end in a few months’ time, and as businesses emerge from the crisis, access to finance and cash flow will be just two of the many financial and operational challenges that will be important to navigate. It’s clear that with 65% of UK SMEs having benefitted from the government’s furlough scheme they will be looking at alternative ways to get further support.

Alternative lending has been the SMEs go-to substitute for finance for numerous years and has provided a finance lifeline in many difficult times. This avenue of funding differs from traditional banks and is typically more flexible, faster and has a higher approval rate – which is ideal for helping businesses stay afloat in the weeks up until July 19th!

To truly support the specific needs of SMEs, financing needs to come from providers who can understand their challenges. Therefore, looking at a flexible approach, quick turnaround times, and the ability to leverage technology and machine learning will enable these businesses to make better decisions. This is the time for alternative lenders to shine and be the catalyst for economic recovery once again.

The road to recovery for SMEs
Uncertainty has eclipsed the road to recovery for SMEs. With no clear support from economic packages or government schemes to bridge the short-term cash flow issues – businesses are looking for ways to stay afloat. The effects of the pandemic will be here to stay, with businesses having to deal with further delays and fears of a third wave in the summer, it is clear leaders will be looking at ways to be more resilient.

With the road to recovery scattered with obstacles, businesses must be wary and identify alternative ways for further support. No matter which avenue is chosen, from government support to alternative lending, they need to feel confident in their recovery. The right financing will be critical in the next few months, which will help to provide small and medium businesses guidance and opportunities to grow – after all they are the backbone of economies.

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