More than half of UK SMEs have already bounced back from the pandemic

New research from Paragon Bank(1) revealed that 54% of UK SMEs have already either met or exceeded pre-pandemic turnover levels, with more than nine in ten feeling positive about their post-Covid recovery.

One in five SMEs (22%) have now exceeded pre-Covid turnover levels, while 31% are now matching pre-pandemic figures. Of those still working towards pre-pandemic recovery, 31% predict they will reach pre-Covid levels ‘soon’ while only one in seven (16%) still perceive their path to recovery as ‘uncertain’.

Positive sentiment was resoundingly high amongst SMEs, increasing from 86% in September to 92% at the end of May. A quarter of businesses (24%) anticipate their business recovery will exceed pre-Covid levels, marking an increase of 10 percentage points since September. Four in ten predict they will remain ‘as strong’, which also represents a 10 percentage points increase from 30% in September 2020.

Smaller businesses with less than 100 employees reported the fastest rates of recovery, with 64% reporting turnover matching or exceeding prep-pandemic levels, compared to 47% of larger SMEs (100-249 employees).

Cashflow levels were the biggest challenge of the pandemic

The survey revealed that 58% of SMEs experienced cashflow issue during the pandemic, making this the most common challenge for UK businesses.

Loss of profit was the second most common challenge, experienced by 53% of SMEs, followed by late payments, which impacted one in three (34%).

However, levels of cash reserves remain a leading concern for UK businesses as they emerge from the Covid-19 pandemic, with four in ten still uncomfortable with their current cash reserves.

John Phillipou, managing director of SME Lending at Paragon Bank, commented on the findings: “It’s encouraging to see that UK SMEs are bouncing back so rapidly post-pandemic, with many already exceeded pre-pandemic turnover levels. We’ve seen many businesses make changes during the pandemic and prove incredibly nimble, from opening up new revenue streams and sales channels to completely transforming their offering.

“Considering that cashflow issues were the biggest challenge of the pandemic for most business owners, it’s understandable that building cash reserves continues to be a priority. On average, business owners that are comfortable with their cash reserves have 30% more in the bank than those who aren’t, so we anticipate that building a financial buffer will continue to be a priority for UK SMEs until the economy stabilises further.”

Government support has been crucial to powering recovery

Close to half of SMEs (44%) consider the government to be the main source of business support during the pandemic and two thirds (67%) of business owners approve of the level of support provided by the State.

Financial providers and industry and trade bodies were also key sources of support, which were considered significant by 38% and 36% of SME owners respectively.

The furlough scheme was the most commonly taken-up government support initiative, with 44% of businesses furloughing employees. More than one in four (27%) used the Coronavirus Job Retention Scheme, Business rates relief (27%) or VAT deferral (26%), while the Coronavirus Business Interruption Loan Scheme (CBILS) was utilised 19% of owners.

One in four SMEs (23%) said they were looking to use the government’s Recovery Loan Scheme (RLS), with most business owners looking to use the scheme to help with cashflow.

Amongst respondents, 12% had already used RLS – amongst those, 56% used the funds for cashflow reasons while 28% invested in more equipment and 27% bought more stock.

Take-up of RLS was more than double amongst larger SMEs (100-249 employees), where 31% of businesses made use of the scheme.

John Phillipou added: “The government’s RLS scheme is very much still in its infancy having only launched in April, so it’s great to see there is already such awareness of the scheme, with nearly one in four SME owners looking to use it in the future.

“One of the great thing about RLS is that it has relatively simple eligibility criteria, and allows businesses to either access cheaper funding, or to receive loans that lenders wouldn’t usually be able to offer as part of their ‘everyday’ lending policy. The RLS scheme is a great asset for SME owners looking to power their post-Covid recovery.”

(1) Survey of 1,000 UK SMEs – end of May 2021