ThinCats research highlights pandemic resilience of mid-sized SMEs
Research by ThinCats, the leading alternative finance provider to mid-sized SMEs, shows that mid-sized businesses (the “M”s of SMEs) have been able to navigate the economic impacts of Covid in much better financial shape than small businesses.
By analysing loan data, filed company accounts and historical insolvency rates, ThinCats’ report “The impact of Covid on mid-sized SMEs” gives an insight into the relative strengths of mid-sized businesses over the last two years and how they are positioned to cope with the challenges of the post-pandemic environment.
Between April and December 2020, 18% of mid-sized SMEs borrowed a total of £20bn, compared to 35% of small businesses borrowing £45bn. This resulted in mid-sized SMEs increasing their total borrowing by 1.8 times normal levels, compared to a 6.3 times increase for small businesses.
Net cash analysis shows that mid-sized businesses established a 60% increase in net cash balances compared to pre-pandemic levels, whereas small businesses increased net cash levels by just 5%.
SME insolvency rates for 2021 reached record lows due to the impact of the government’s support programmes. As insolvencies start to rise again, ThinCats predicts that insolvency rates for mid-sized businesses will return to pre-pandemic levels, while the rate of failure for small businesses is likely to be significantly higher than before the pandemic.
Ravi Anand, managing director, ThinCats “This report provides a timely insight into how SMEs have coped with the challenges of the pandemic. The SME sector is often seen as a homogenous group, however, these findings show big differences in the financial resilience of the mid-sized compared to small businesses.
“The data show that mid-sized SMEs have come through the pandemic in pretty good shape. CBILS loans were the predominant source of new funding for these businesses who used the funding to strengthen their net cash positions by 60% during the pandemic. In contrast, small businesses only managed to improve their net cash positions by 5%.
“Looking ahead, we often see periods of increased indebtedness followed by rising insolvencies. Given that government support helped many businesses survive that would normally have failed, there is also an element of catch up to consider when predicting future insolvencies. We expect mid-sized business insolvencies to rise, but thanks to their relatively high net cash levels, only to rates similar to those experienced before the pandemic.
“For small businesses, who have used up their cash much more quickly, there could be a much sharper rise in business failures to numbers well above pre-pandemic levels. Much will depend on their capacity to meet their interest payments, particularly for those that are first-time borrowers. Another unknown is how aggressive the banks will be in pursuing outstanding BBLS debts.
“Our overall conclusion is that mid-sized SMEs have proven to be much more resilient than small businesses during the pandemic, which puts them in a strong position to take advantage of new growth opportunities.”
