As the last vestiges of pandemic restrictions lift in the UK, many small-and-medium enterprise (SME) business owners are left facing a long recovery back to full health. As they do so, the new reality of doing business in post-Brexit Britain will start to bed in. Emma Lovell, Chief Executive of the LSB (Lending Standards Board), explores how lenders can support these firms, as government-backed support ebbs away. 

At the start of 2021 there were 5.5 million small businesses operating in the UK, accounting 99.9 percent of the UK’s total business population. 

These firms – with fewer than 49 employees – account for three-fifths of employment and around half of turnover in the UK private sector. 

But for many SME owners, the welcome start of the pandemic recovery comes with other, more insidious pressures like rising inflation, ballooning energy prices and higher debt servicing costs. 

And as the UK marks just over a year since its official “Brexit” date, internationally-focused firms are contending with plummeting trade volumes with the European Union, and supply chain issues persist – despite the fact they have fallen from the headlines. 

Banks and financial services providers need to continue to rally around the SME community and understand the challenges they are facing so that they continue to be supported as direct government support ends. 

The pandemic was characterised by unprecedented government intervention in the economy, with businesses and workers receiving reprieve via government-backed lending initiatives, the temporary relaxation of insolvency rules, and the furlough scheme. 

Figures from HM Treasury show 1.5 million businesses used government-backed lending schemes during the pandemic, with 1.47 million small firms accessing £45 billion in finance via the Bounce Back Loan Scheme (BBLS). The Coronavirus Business Interruption Loan Scheme (CBILS) – suitable for those with turnover of up to £45 million – supplied finance to over 87,000 businesses. 

These loans were – or are – financed by commercial lenders and have been closed to applications since April 2021. A new Recovery Loan Scheme (RLS) opened on 6 April 2021 and is open until 30 June 2022.  

This barrage of staggering figures means lenders need plans and policies in place for the coming months and years, as firms deal with these debts. Analysis from UK Finance shows that the vast majority of UK businesses had an existing relationship with at least one of the 29 lenders accredited to BBL, or the 118 who administered the CBIL scheme – making this a matter of caring for long-term customers. 

There are of course things lenders can do to aid their SME customers, like a continuation of the repayment holidays and arrangements that became ubiquitous during the pandemic. At the same time, it is important to ensure business customers are not getting into debt spirals as economic uncertainty persists. 

Debt servicing pressure has become a huge issue for SMEs, with Bank of England data showing around a third of SMEs have a “high” debt to cash ratio post-pandemic, compared with around one-in-five that did so pre-coronavirus. 

However, the situation is not all doom and gloom, especially for regional businesses. The government delivered its long-anticipated ‘levelling up’ whitepaper in February 2022, with plans to “turbocharge” economies outside London, increasing public investment in R&D by least 40 percent, alongside a slew of other support measures. 

This news is a step in the right direction to ensuring SMEs are operating within healthy regional economies with access to the right staff. 

Recent analysis from the Financial Times showed that many “midsized towns in the former industrial heartlands of the Midlands and north” fared much better during the pandemic than wealthy cities. But many are struggling as the pandemic has continued to deplete sales and drain cash reserves. 

In a landscape filled with both challenge and opportunity, banks and financial service providers must ensure they really get to know their SME customers. It is vital that lenders not only supply access to finance for SME customers, but also the information, tools, and guidance they need to navigate the dual pressure of a post-Brexit and post-pandemic world. 

With public sector support now largely winding down, the private sector must continue to step up and ensure that the UK’s SME sector thrives anew.