Record number of SMEs set to close in 2021 due to impact of COVID-19

A record number of small businesses are set to close in the year ahead, according to research from the Federation of Small Businesses (FSB).

More than a quarter of a million businesses are due to close their doors for the final time in 2021, according to FSB’s latest Small Business Index (SBI).

Just under 5% of the 1,400 firms surveyed for the study say they expect to close this year. The figure does not reflect the threat of closure faced by those hoping to survive despite having frozen their operations, reduced headcounts or taken on significant debt.

The proportion is at an all-time high for the SBI, which launched in the wake of the financial crash, and is more than double that recorded at the same point 12 months ago. There are 5.9 million small firms across the UK, according to the Department for Business, Energy and Industrial Strategy (BEIS).

The UK SBI confidence measure stands at -49.3, down 27 points year-on-year. The reading is the second-lowest in SBI history, second only to that recorded in March 2020. The vast majority of those surveyed (80%) do not expect their performance to improve over the next three months.

Close to a quarter (23%) of small firms have decreased the number of people they employ over the last quarter, up from 13% at the beginning of last year. One in seven (14%) say they’ll be forced to cut numbers over the next three months. BEIS estimates that 16.8 million people work in smaller firms across the UK.

The proportion of small businesses forecasting a reduction in profitability for the coming quarter has spiralled over the past year, rising from 38% to 58%. The figure is at an all-time high.

Almost half (49%) of exporters expect international sales to drop this quarter, up from 33% at this time last year.

FSB National Chairman Mike Cherry said: “The development of business support measures has not kept pace with intensifying restrictions. As a result, we risk losing hundreds of thousands of great, ultimately viable small businesses this year, at huge cost to local communities and individual livelihoods. A record number say they plan to close over the next 12 months, and they were saying that even before news of the latest lockdown came through.

“At the outset of the first national lockdown, the UK Government was bold. The support mechanisms put in place weren’t perfect, but they were an exceptionally good starting point. That’s why it’s so disappointing that it’s met this second lockdown with a whimper.

“There are meaningful lifelines for retail, leisure and hospitality businesses, which are very welcome as far as they go. But this Government needs to realise that the small business community is much bigger than these three sectors.

“Company directors, the newly self-employed, those in supply chains, and those without commercial premises are still being left out in the cold. We’ve published a five-point plan to address gaps in the support landscape, and we look forward to the Treasury embracing it. Action in March will be too late to stem closures.

“We also have to look again at how we treat emergency debt facilities over the coming months. Many of those who have borrowed significantly have done so in order to innovate. It would be a shame to lose the top businesses of tomorrow because of a failure to extend grace periods today.

“All the while our exporters are trying to get across what a new EU-UK trade agreement means for them without the cash they need to make adjustments. Direct funding to help them manage new obligations in the form of transition vouchers is urgently needed.

“This Government can stem losses and protect the businesses of the future, but only if it acts now.”


Industry reaction

Ian Warwick, Managing Partner at Deepbridge Capital, said: “Unfortunately today’s announcement from the Federation of Small Businesses comes as no surprise as the latest lockdown represented yet another setback for many business sectors, SMEs and workers. The Government has worked hard in an incredibly difficult environment to create a capital lifeline to many SMEs via the BBLS and CBILS, as well as long-term support for growth-focused companies via the likes of the Enterprise Investment Scheme, but now we would urge that there needs to be even greater support – both via financial and via sustainable growth initiatives. Agile companies, which have survived 2020 and provide a product or service which has a genuine medium to long term solution to a recognised problem, will continue to develop and grow but require capital to do so.

“The types of companies we support, being innovative technology and life sciences companies, are by their very nature expected to be highly innovative and are therefore are generally focussed on addressing long-term market needs. As we witnessed last year, we believe there should continue to be a genuine need for the research, development and/or products such companies are producing. Of course, the life sciences sector has perhaps never seen greater focus and there continues to be great UK innovations in this space. The biggest problem for growing early-stage companies may be access to funding, but we expect UK investors and financial advisers to continue to utilise the Enterprise Investment Scheme (EIS) to support such great companies whilst allowing investors to benefit from the generous potential tax reliefs on offer. EIS has never been a more important Government tool for supporting the UK economy and it has never been more vital for investors to understand the potential benefits.”

Douglas Grant, Director of Conister, part of AIM listed Manx Financial Group, said: “The long-term future of the UK’s business sector is fundamentally reliant on people and resilience. Business has always been about people buying from other people. We must ensure that principally the financial security of individuals is protected so that they can continue to conduct business with each other and while businesses across the country have shown extraordinary levels of adaptability and strength in the face of changing consumer behaviour, we must also appreciate that we are now beyond the survival stage.

“The BBLS and CBILS played instrumental roles in keeping many resilient SMEs alive and acted as important triage systems to identify and support viable businesses that needed credit. However, we are now passed this triage phase where the collective terms ‘small business’ or ‘SME’ were used to gauge the impact of the pandemic on the economy, are unhelpful. It is imperative that we identify, prioritise and protect our most resilient individual business sectors and segments and avoid exasperating the zombie status of weak businesses that continue to service their debt piles. A great many businesses will not survive this pandemic and we must learn from each one.

“At Conister we have delivered upon all of our initial objectives. We received an initial allocation limit of £10 million for the BBLS scheme and so far, have approved 60% of applications. Without doubt, the scale of applications is enormous, however we have since applied for and received an additional allocation of £5 million and will continue to focus on resilient business segments that we believe will thrive in the future. Conister will continue to do all it can and work alongside Government and traditional lenders to support British businesses.”

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