A third of SMEs anticipate threats rather than opportunities ahead

However, with uncertainty around how Covid-19 restrictions might change and the end of the Brexit transition period on 31st December approaching, a third of SMEs (32%) in Q3 said that the future represented threats, compared to a fifth (19%) who saw opportunities for their business.

Prior to the stricter restrictions introduced in October and November, the SME Finance Monitor’s findings show clear signs of an improvement in business outlook. In contrast to Q2, more SMEs were positive, with 40% rating their mood as good, up from 25% in the previous quarter.

Meanwhile the proportion of SMEs expecting to really struggle with revenue in the coming months had halved from 60% in Q2 to 30% in Q3.

Despite a more positive environment in Q3, challenging conditions persisted, with three quarters of SMEs reporting being negatively impacted by Covid-19. This impact was felt most by smaller SMEs, a third of which described themselves as very negatively impacted. Reported growth in the last 12 months was the lowest level reported to date on the SME Finance Monitor at 25%.

9% of employers have made staff redundant, up from 5% in Q2, and increasing to 23% of those with 50-249 employees.

40% of SMEs think the worst is still to come, albeit down from 51% in Q2.

Improvements to the outlook for SMEs came as usage of government-backed lending schemes grew, with the overall proportion of businesses utilising finance increasing from 30% in Q2 to 40% in Q3, with around nine in 10 SMEs who applied able to secure Covid-related finance in Q3. The proportion of SMEs happy to borrow to grow was 34 percent, back in line with 2017, with access to finance much less likely to be perceived as a major barrier to their business going forward (8%) than other factors such as the current economic climate (41%).

Shiona Davies, director at BVA BDRC and editor of the SME Finance Monitor, commented: “The Q3 results reflect both the stresses SMEs have faced, especially those in the hospitality sector, and the improved mood during the summer months before the second Covid-19 wave developed, also reflected in the GDP figures. There have been improvements since Q2, but many SMEs remain cautious about their future and this is also reflected in the interim data to October and November which will be published in due course.”

Stephen Pegge, managing director of commercial finance at UK Finance, added: “The banking and finance industry is providing an unprecedented package of support to help businesses through these tough times, including supporting nearly 1.5 million businesses through government-backed lending schemes.

"Despite the considerable challenges which remain, it’s encouraging to see that a growing number of businesses are now able to look ahead to the future and access the support they need to prepare, with nine in 10 SMEs who applied successfully securing finance.

"The industry continues to work closely with government, regulators and business groups to ensure SMEs have access to the best support, information and guidance. Through our Let’s Talk Business campaign, we are encouraging all businesses to contact their finance providers now to discuss how best to prepare and consider any additional financing needs.”