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Is Spring Really in the Air? Heightened Consumer Confidence May Not Be Enough This Season for Small Businesses

By Scott Donnelly, CEO at CapitalBox

The 17th of May has been marked out in calendars across England ever since Boris Johnson announced his roadmap to easing lockdown restrictions earlier this year. This isn’t just great news for people across the country who can now sit inside the pub when it rains, plan a staycation or attend a gym class, it should also be a positive step for small businesses.

In the first week of pubs, restaurants and non-essential retail being able to open their terraces and 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!

Are they though? Are consumers confident enough to go out and spend a significant amount of their savings? Is that sense of euphoria in being free and ‘treating yourself’ going big enough to outweigh confidence?

Will we really see a continuous surge in spending like we did in the first week, on a more long-term basis? What was spent in that week won’t help those small businesses stay afloat and recover what has been lost in the last 14 months.

Are we as confident as we’d like to be?

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.

Scott Donnelly

Scott Donnelly

However, this was all before issues around the vaccine shortage and fears of a third wave this summer hit the headlines. 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.

Reliance on loans during the crux of the 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.

End of an era

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 May 17th!

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.

Keep up or get left behind

Just like the ‘New Year’ hangover effect where people look to save back up and get into shape in January, it will not be surprising if we see something similar here. With businesses having dealt with the blow of the pandemic and fears of a third wave in the summer, it is clear leaders will be looking at ways to be more resilient.

As the economy looks set to recover and with optimism high, the future certainly looks brighter for businesses. 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 last stretch of the road to recovery, 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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