More than four in ten (45%) small and medium-sized businesses applied for external financial support last year, according to research from the British Business Bank (BBB).
Gross bank lending (excluding overdrafts) to smaller businesses rose to £104bn in 2020, a figure that was 82% higher than in 2019.
The coronavirus crisis, together with the provision of government-backed loans and grant support from local authorities are behind the sharp increase in financial support applications in 2020, which was up from just 13% of businesses the year before.
As the pandemic continues, experts from the BBB said that many smaller companies will struggle to make repayments on debt that they’ve taken on in recent months and may require rescuing in the near future.
The group also said that it expects demand for loans to remain strong for companies in 2021 as businesses seek to move on from the pandemic, adapt to life outside the EU, improve productivity and transition to a new net-zero economy.
Catherine Lewis La Torre, CEO of British Business Bank, said: “This has been an especially challenging period for smaller businesses with external finance playing a vital role in business survival in the face of the Covid-19 pandemic. The British Business Bank has played an important role during the crisis and we will continue to support smaller businesses as they steer a path towards a sustainable recovery.”
The availability of government-backed loans significantly altered the make up of business borrowing last year. Businesses shifted away from more traditional forms of external finance to significantly cheaper government-backed loans and other support, including grants.
Utilisation of bank overdrafts, credit cards and asset finance all dropped significantly last year, while loans increased from around 10% in previous years to 25% in 2020. Government grant funding by businesses also increased significantly, from 2% in 2019 to 31% in 2020.
In the final quarter of the year, more than a third (37%) of smaller businesses expected to stay the same size over the next 12 months, 33% expected to shrink, and 4% to sell or close. Only one in five (21%) were expecting to grow, compared to 28% the previous year.
Tom Fox, Licensed Insolvency Practitioner at Umbrella Insolvency said: “Government support has kept thousands of small and medium sized companies going over the last 12 months. As this support is withdrawn, many could be in a position where they need business rescue.”
For more information about business rescue, speak to a member of the business team today. Call: 0800 611 8888.