Having reached ‘Freedom Day’ this week, it would be gratifying to think that the small businesses that power our economies in the UK are on the path to a sound trading recovery.
Economic indicators, including our own Global Economic Conditions Survey for the last three months, are reporting a strong rebound in the UK economy and predicting that it will have reached pre-Covid levels before the end of the year.
On the face of it, this much-needed news heralds a welcome new dawn for struggling SMEs, who hope to reap the benefits of full reopening to repair their battered finances.
However, as we have learned to expect in these pandemic times, the true picture is a little more nuanced and uncertain.
Our monthly survey of accountants serving many thousands of small UK enterprises, the SME Recovery Tracker, which we run with The Corporate Finance Network, has revealed a blurry picture of anxiety, uncertainty and stress.
Owners reported last month a sharp rise in stress, as the country started to reopen. In May, they told us they felt ‘paralysed by mixed messages’ as they grappled with the constantly changing health crisis and the emergence of the Delta variant.
The start of unlocking has left them uncertain how to plan their financial future – with only a quarter making any plans to survive a further lockdown, despite the new variant surging.
Underlying a varied picture of confusion and worry, one of the factors at play is the difficulty many are having in arranging the right financial support to guide them through the next stage of the crisis. This is a pivotal factor in the UK’s recovery from the devastation that the global pandemic has brought to our people, our businesses, and our institutions.
The UK needs its banks and other lenders to offer the right support for the UK’s army of 6 million SMEs, which provide employment for 16.8 million people and generate 50% of UK turnover, so that they will drive the recovery.
While we applaud the business support measures put in place by the government in the last year – including furlough, business rates relief, VAT and tax deferrals – we must ensure that we get the next step right, as support schemes like furlough come to an end and unpaid bills start to become due.
Government support grants are rolling out very slowly and local authorities should be directing business owners towards grants for which they are eligible, rather than just turning down applications where the criteria have not been met.
The Financial Stability Report recently concluded that firms and households will continue to need loan support from banks as government-backed schemes wind down. Levels of debt for SMEs have jumped by 25% since the end of 2019 and there are risks to small businesses as they start to repay loans that kept them afloat in the crisis.
Meanwhile, the banks themselves are judged to be in a strong financial position and can resume paying dividends to shareholders. Our members are reporting early difficulties in obtaining the right continued financial support from banks that are often reverting to individual and sometimes opaque rules, which leave business owners confused about how to proceed.
In worrying cases, business owners may turn in panic back to the bad old days of borrowing from family, friends and loading debt on to credit cards.
There is a lack of transparency and inconsistency across the sector about the new ‘rules of the game’ from mainstream lenders about what they now find acceptable.
Some are cautious about extra lending on the back of government-backed loans and others are looking for SMEs to use them as a single finance provider, rather than encourage the right mix of finance for a healthy businesses, which could involve new financial technology innovations.
At full speed
Our latest tracker results show that businesses are now back trading at or above the level they expected, but they are struggling to obtain even the most traditional form of finance, such as an overdraft. We would appeal to the financial services sector to support small businesses as loan repayments kick in. They need access to finance that doesn’t lead to personal debt that can really impact their mental health.
Our SME sector is powerful and productive. We reflected in our recent report Responsible SMP Pacesetters how important these small enterprises are to the societies in which they operate.
Author Aleksandra Zaronina-Kirillova wrote that smaller accounting practices also have a vital role in enabling SMEs, helping them to operate more effectively, powering economic growth and encouraging employment and individual prosperity.
They also advise small enterprises on how they can contribute to wider social responsibility programmes, including sustainability and ethics.
We have an opportunity to support sustainable recovery, one that reflects the vital role that SMEs play in our supply chains, our communities and our economy.