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Access to finance hits record levels as small businesses continue to seek financial support

Research from British Business Bank shows a record number (45 percent) of smaller businesses accessed external financial support in 2020, with demand expected to continue in 2021.

The Small Business Finance Markets 2020/21 annual report, released on 10 March, highlighted the ongoing challenge for businesses impacted by the COVID-19 pandemic and the resulting restrictions.

The key findings are:

  • Businesses have moved away from traditional forms of external finance, with decreases in the use of bank overdrafts, credit cards and asset finance. Businesses have turned to government-backed finance schemes and support instead, with the only increase in traditional repayable external finance being loans.
  • The uncertainty of 2020 has hit smaller businesses the hardest, with a significant number (89 percent) of these businesses seeking finance due to the impact of the pandemic, cashflow being the primary area (79 percent) of concern. Encouragingly 8 per cent sought finance, at least in part, to pivot or change their business model and 7 per cent to invest in the digital capability of their business.
  • Businesses are still recovering from the effects of Covid-19, resulting in continued demand for further funding in 2021.
  • The report shows record cash balances with many smaller businesses being in a position to borrow even more in 2021.


Road to recovery

The final quarter of 2020 saw 37 percent of smaller businesses expecting to stay the same size over the next twelve months, with 4 percent expecting to close or sell and 33 percent expecting a decrease in size. Encouragingly 21 percent forecast growth, with business services (25 percent) and production (23 percent) feeling positive about their potential for growth in 2021.

The recovery from Covid-19 is ongoing and the report indicates a continued need for further funding for smaller businesses in 2021.  The suggestion is that banks have sufficient capital to facilitate this further need for lending, and because of the popularity of the government schemes alternate finance lenders (non-banks) have seen less engagement and demand for their financial products. These lenders expect activity to increase when normal service and demand returns.

The British Business Banks Start Up Loan Programme saw applications reach a peak in June 2020, with a record £126m of funding. Recently the organisation, alongside government, implemented the Recovery Loan Scheme - providing continued access to financial support and loans of up to £10m per business once the current Covid-19 loan schemes close. The new scheme will provide further support to businesses as they recover from the effects of the pandemic and strengthen their chances for growth and stability.


The Small Business Finance Markets Report

The annual report provides insight into the current situation of finance markets for smaller businesses and details market developments regarding financial products. The 2020/21 report focuses on the impact of Covid-19 and the consequences for 2021.

Results from the organisation's annual Business Finance survey (based on over 4,000 interviews) is used as the basis for the Small Business Finance Markets Report and this year the survey was adapted to include the impact of Covid-19 on small business finance markets. The research analysed issues such as the rapid change in the types of external finance used by SMEs, the ways in which smaller businesses have used this finance to help their businesses survive and recover and their expectations for 2021.


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About the author

Mark Gibbons

Mark Gibbons

Mark is the Senior Access to Finance Specialist in Lancashire and is responsible for day to day management of our Access to Finance specialists across the county.

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