"This has been an especially challenging period for smaller businesses with external finance playing a vital role in business survival in the face of the Covid-19 pandemic."
At the same time, gross bank lending to smaller businesses rose to £104bn in 2020, 82% higher than in 2019, driven by use of the government loan schemes.
The report suggests there could be significant further demand for funding throughout 2021 as businesses seek to move on from the pandemic and pivot towards growth, adapt to life outside the EU, improve productivity and transition to a new net zero economy.
In 2020, businesses shifted away from most traditional forms of external finance to utilise government-backed finance schemes and support.
Reflecting this, the utilisation of bank overdrafts, credit cards and asset finance all fell, while the only increase in the usage of traditional repayable external finance was seen in loans, up from around 10% in previous years to 25% in 2020. This is in reflected in BBLS and CBILS lending data, which showed around 1.5m facilities approved by the end of 2020. The use of government grant funding by businesses also increased significantly, from 2% in 2019, to 31% in 2020.
The report shows that nine in ten (89%) businesses seeking external financial support in the past year did so because of the impact of Covid-19, with 75% of these SMEs seeking external financial support to help with cashflow. Encouragingly 8% sought finance, at least in part, to pivot or change their business model and 7% to invest in the digital capability of their business.
The report finds that record cash balances on the one hand and increasing debt levels on the other indicate that there are both a sizeable number of smaller businesses in a position to borrow further in 2021 and a sizeable number likely to struggle with debt repayments. High levels of debt, and in particular the number of businesses with higher debt to turnover ratios, suggests a "potential drag on viable applications for finance in 2021".
Catherine Lewis La Torre, CEO of British Business Bank, said: “This has been an especially challenging period for smaller businesses with external finance playing a vital role in business survival in the face of the Covid-19 pandemic. The British Business Bank has played an important role during the crisis and we will continue to support smaller businesses as they steer a path towards a sustainable recovery.”
