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The British Investment Bank reports an increase in loans to SMEs with 89% of companies seeking financing in 2020 due to Covid-19. The banks Small Business Capital Markets Report states that 45% of SMEs surveyed applied for funding in 2020 compared to only 13% in 2019
Gross bank lending to small businesses reached £ 104 billion in 2020, an amount 82% higher than in 2019. Much of that figure was due to access to the UK government’s COVID support programs. Many businesses have shifted away from more traditional forms of lending in favor of government-supported programs.
The Bank estimates that there could be additional demand until 2021 as companies try to weather the health crisis.
Catherine Lewis La Torre, CEO of British Business Bank, said this has been a particularly difficult time for small businesses, with external financing playing a vital role in the survival of businesses:
“The British Business Bank played an important role during the crisis and we will continue to support small businesses as they move towards a sustainable recovery.”
The Bank says the use of bank overdrafts, credit cards and asset finance have all fallen. There has been an increase in the use of traditional repayable external finance, from around 10% in previous years to 25% in 2020. The report states that BBLS and CBILS loan data indicate that around 1.5 million of facilities have been approved by the end of 2020.
The use of government subsidies by businesses has also increased significantly, from 2% in 2019 to 31% in 2020.
Research shows that 75% of SMEs are looking for external financial support to help them with their cash flow. Interestingly, 8% sought funding, in part, to pivot or change their business model and 7% to invest in their company’s digital capacity.
Data indicates that through BBLS and CBILS, 59% of SMEs with access to government-backed finance programs have borrowed more than 20% of their reported turnover.
Decreasing turnover for businesses of all sizes, with the smallest SMEs experiencing the largest declines in turnover.
In the third quarter, 49% of businesses with no employees reported a decline in revenue in the past 12 months, compared to 38% of businesses with 50 to 249 employees.
The Bank believes that high levels of finance debt suggest a potential drag on viable financing requests in 2021.
As of Q4 2020, 37% of small businesses planned to stay the same size over the next 12 months, with 33% expected to contract and 4% to sell or close. 21% expected growth, up from 28% the previous year.
Small businesses (10 to 49 employees) and medium-sized businesses (50 to 249 employees) were most likely to expect growth (35% and 38% respectively) compared to 21% overall.
SMEs in the business services and manufacturing sectors were the most optimistic about their growth prospects over the next year.
Naturally, due to the predominance of government lending programs, nonbank and alternative lenders were less active in 2020 and saw demand for their products decline. The Bank expects these lenders to resume their activity.
The Bank said its start-up loan program saw successful applicants peak in June 2020 and a record £ 126million drawn in 2020, the highest since the start of the program and up 41% compared to 2019.
Regarding high growth companies that can boost employment and economic growth, the Bank states that British Patient Capital has the capacity to deploy an additional £ 1.5 billion to support investments in these types of businesses.
The Bank has also developed the Payback Loan Program to ensure that businesses of all sizes can continue to access loans and other types of financing up to £ 10million per business once the loan programs are completed. Existing Covid-19 closed.
British Investment Bank SBFM-2021-Infographic
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