May 24

May 24 UK business owners turn to family before the bank when they need urgent financial help

UK business owners turn to family before the bank when they need urgent financial help.png

While the UK economy shows positive signs of recovery, SMEs remain in a vulnerable position. New research from Liberis shows the extent of SME challenges, revealing 4.9m of the country’s 6m SMEs have needed financial help during coronavirus. Most critically, these SME owners are turning outside of the financial system when they are most in need. Nearly as many business owners are turning to family as often as banks for financial support, with one-third of SMEs owners relying on their parents for urgent financial needs.

The true scale of SME challenges

Four in five of Britain’s small businesses have needed financial help, new research from UK fintech company Liberis shows, greater than previous estimates of 45%, based on a survey of 500 SME owners conducted in March 2021.

When in an emergency situation, family is the most used source of financial support, ahead of banks - for urgent financial help, 46% turn to family compared to 40% who turn to banks. And over a third (35%) said they turn to parents specifically, while one in five (19%) said they turned to close friends.

Overall, more than three-quarters of small business owners have accessed financing through official providers since the start of the pandemic. Liberis’ research also found that more than a third (37%) of SME owners have taken on a second job to keep their businesses afloat, and more than a quarter (28%) have considered doing this.

Rob Straathof, CEO of Liberis, said: “There has already been record levels of lending to SMEs during the pandemic, with the British Business Bank finding almost half applied for external financial support last year. While government-backed programmes provided a much-needed stopgap, many SMEs are still turning to family, friends and second jobs to get them through. With these schemes coming to an end and traditional banks expected to reduce SME financing, small business owners need more options.”

Cash flow remains the biggest challenge for SMEs, with 44% saying this was a major difficulty ahead. A previous survey by Liberis in July 2020 also placed this at the top of businesses list of concerns.

Cutting back and shifting digital

Liberis’ research also highlights the lengths SMEs go to stay afloat, cutting costs and adapting their businesses.

Business owners said they have made cutbacks to save money, including reducing discretionary spending on non-essentials like coffees and travel, but also on essential outgoings like heating and lighting - and even eating. An astonishing 6% said they were saving money on food and in some cases, business owners said they were eating less food and even skipping meals altogether.

SMEs are also adapting their businesses to save money and cut costs, including taking on their own marketing and promotion, reducing product lines or making changes to prices, as well as introducing cheaper packaging. Overall, 65% said that adaptations that they have made during the pandemic will be for the long term.

A third of SMEs said that there were positives from COVID, with 6% citing a move to online as a positive outcome of the pandemic for their business and 15% of business owners said this digital shift will be a long term change for their business.

Supporting SMEs for the long haul

Straathof adds: “SMEs are the backbone of the UK economy, providing our cities with creativity and character and promoting an atmosphere of innovation and entrepreneurship and need specific support. SMEs, of which nearly half are seasonal, also support 60% of jobs in the UK, with fluctuating revenues.

“With traditional business loans, only 25% of SME applicants typically get approved, with application review processes that don’t provide SMEs with the urgent cash they need. New revenue-based financing sources like Liberis let SMEs access funds with pre-approved finance offers based on their business transactions, not credit score and assets, providing flexible payments that adapt in line with their current business needs.

“Our data shows clear signs of hope for SMEs as the UK reopens, most prominently with businesses that have stayed active throughout COVID. Overall, these active businesses have increased transaction revenues by 25 percent weekly since January.

For companies that serve SMEs, they can consider offering support by embedding revenue-based finance into their platforms, providing greater access to funds for SMEs when they need it most, encouraging long-term recovery and business growth.”