Business confidence stays strong, but SMEs remain worried about the impact of COVID

  • Nearly eight out of ten SMEs say they are confident of a boost to trade over the next three months
  • Almost one in five worry COVID restrictions could return over the coming three months
  • Many SMEs are relying on overdrafts and credit cards to fund business growth plans

Business confidence among Britain’s smaller companies remains strong with almost eight out of ten (78%) SMEs saying they are confident of a boost in trade over the coming three months now that most COVID restrictions have been lifted.

However, research by Recognise Bank also reveals that a significant number of SMEs are still concerned about the continued impact of the coronavirus on their business, with almost one in five (19%) of all companies worried that COVID restrictions could be brought back at some point over the coming three months.

Unsurprisingly this rose to more than a quarter (26%) of businesses in the leisure and entertainment sector.

COVID related factors topped the list of concerns for SMEs. Recognise Bank’s research found:

  • 19% of all SMEs worry COVID restrictions could return over the next three months, rising to 26% of leisure and entertainment businesses
  • 17% of all SMEs are worried there could be another lockdown before the end of the year
  • 17% of all SMEs are concerned about keeping their employees safe from COVID, rising to 26% of businesses in the leisure and entertainment sector
  • 15% of all SMEs are concerned about keeping their customers safe from COVID
  • 14% of all businesses surveyed are worried their employees won’t want to return from working at home
  • 14% of SMEs worry they will be understaffed because too many employees will have been “pinged” and forced to isolate
  • While 13% of companies are worried about having to enforce COVID pass checks on their customers

The impact of COVID also remains a constant theme amongst SMEs and their business growth plans. Recognise Bank found that 24% of firms plan to purchase more protective equipment for their staff over the next three months, although this is down from 30% when Recognise surveyed SMEs in May. Spending on protective measures for customers were also planned by 18% of all SMEs surveyed, although again this was lower than May when the figure was 22%.

Top of the shopping list for SMEs in the latest report was new equipment and IT, identified by 24% of SMEs, down from 30% in May; new stock and equipment, as cited by 21% of firms, down from 25% in May; and new products and services, selected by 19% of businesses, falling from 25% in May.

However, when it comes to funding their business purchases, Recognise Bank found that a significant number of SMEs plan to use potentially high-cost sources of borrowing. The use of an overdraft to fund their business purchases rose significantly to 12% of SMEs in the latest research, compared with 7% in May when the research was last carried out, while the use of credit cards by SMEs also increased, up to 11% compared with 8% in May.

The number of businesses turning to their bank for a loan rose slightly, at 16% compared with 15% in May, while 15% of SMEs said they would use cash from their business surplus, a fall from 20% in May.

Borrowing from an alternative lender, rather than their own bank, was the preferred choice of 6% of SMEs, suggesting a sense of dissatisfaction among a significant number of SMEs surveyed. When asked about the support they receive from their own business bank for their borrowing needs, while a third (33%) of SMEs said their bank was always able to support them, a third (33%) said they were only able to support their borrowing needs sometimes.

By comparison, 14% of SMEs told Recognise that their main bank was never able to provide the support they required for their borrowing needs. This rose to 20% for SME businesses within the retail sector. Just over one in ten (11%) of SMEs said they would always use an alternative lender rather than their own bank for their borrowing needs.

Jason Oakley, CEO of Recognise Bank, said the research proved just how resilient the UK’s small business sector is. He said: “SMEs have weathered a tough and unpredictable 18 months and while their confidence continues to stay strong, the shadow of COVID remains a constant concern and a risk to their businesses.

“We cannot underestimate the importance of the role the UK’s SMEs will play in getting our economy back on an even keel, so they need all the support they can get, whether it’s customers using their local businesses more, or increased support and guidance from the financial sector to provide them with the funding they require.”

Recognise Bank provides unregulated lending to the UK’s SME sector, including Commercial Mortgages, Bridging Loans, Private Practice Loans and Working Capital Loans with professional buy-to-let mortgages to follow soon. The bank has offices in London, Manchester, Birmingham and Leeds, with a network of Business Development Managers backed up by the latest cloud-based technology to provide speedy lending decisions and quick access to funds.

The bank aims to provide more than £1.5 billion of business lending over the next five years, with plans to also launch both business and personal savings accounts later this year.

Recognise’s research and analysis was carried out in August 2021 among a nationally representative sample of 500 senior decision makers in British SMEs by 3Gem.