A fifth of SMEs borrowing more than pre-pandemic

The research from BVA BDRC found that 1 in 3 of the new borrowers and those who had taken on additional finance were concerned about how it would be repaid, and overall the equivalent of 8% of all SMEs were concerned about making repayments.

12% of SMEs reported a need for funding, up from 9% in 2020 and 3% in 2019. Most (81%) wanted funds for cash flow rather than business development purposes, and 80% applied for finance to meet their funding need, typically from their main bank.

85% of all applications made Q3 2020 to Q4 2021 were successful, maintaining the increase seen since 2020 (prior to the pandemic around 7 in 10 applications were successful). Overall success rates were boosted by the Government backed schemes: almost all of those who applied specifically for pandemic related funding were successful, and as a result loan applications were more likely to be successful than those for overdrafts (87% v 66% for applications made Q3 2020 to Q4 2021).

In Q4 2021, 10% of SMEs expected to apply for finance in the coming months, in line with pre-pandemic levels.

Looking forward, SMEs were in a better mood about their future, and had ambitions to grow. 6 in 10 were planning growth related activity, including taking on staff, but there were some concerns about being able to recruit and retain the skills needed. Future appetite for finance was somewhat lower than during the pandemic.

Profitability and growth have been impacted by the pandemic. Both showed signs of recovery in 2021, but the 18% that had grown and the 65% that had made a profit remained below the levels seen pre-pandemic, when 4 in 10 would typically have grown and 8 in 10 made a profit.

Looking forward, after the marked decline in Q2 2020 when 24% of SMEs expected to grow, ambition has improved and by Q2 2021, 52% were expecting to grow, back in line with 2019, although it was slightly lower again by Q4 2021 at 44%.

Shiona Davies, director at BVA BDRC, commented: “SMEs were badly affected by the pandemic, but during 2021 the impact has waned (though not to the same extent for all sectors). A range of metrics, such as mood, optimism about the future and growth plans have improved as a result. More recently, new challenges have asserted themselves, such as increasing costs and the impact of the new trading arrangements with the EU. The coming months will reveal how these new challenges are being dealt with and to what extent SMEs continue to feel that the future offers them more opportunities than threats.”