Two in five businesses fear insolvency or redundancies

More than two out of every five (41%) established small and medium businesses (those with between 10 and 100 employees) across the UK expect to shut their doors permanently, be forced to conduct mass redundancies or close locations within the next 12 months.

And more than one in three (39%) fear their business will be fatally or critically impacted by any forthcoming recession, while a similar number (43%) say they will have to borrow money just to keep their business afloat or refinance existing debt (37%).

It paints a worrying picture for British business as we look likely to enter a recession, with this segment of the economy accounting for around 30% of UK jobs.

The data comes from a recent survey by Allica Bank of 150 established small and medium businesses in the UK across multiple industries. It reveals, too, that 83% of business owners want to see their bank do more to support them as costs of raw materials, fuel, interest rates and inflation continue to rise.

Conrad Ford, Chief Product Officer at Allica Bank, agrees that banks will play a critical role in keeping business owners’ heads above the water: “It’s clear that large numbers of established small and medium businesses are struggling to stay afloat and in fact, many are going to find themselves in further debt just to keep the lights on.

“Banks must do more to help these businesses – either with funding or sharing expertise – because government help can only go so far. As an industry, we support businesses who, in turn, employ millions of people already struggling in a cost-of-living crisis. Our team of relationship managers have been working closely with our business customers to provide information and support, and we think that’s going to become ever more important in the coming months.”

Ania George, Operations Director at Ashley Care, a Norfolk-based operator of three care homes, commented: “As employers of 150 staff, we are very concerned about the current market conditions and the severe economic headwinds of double figure inflation, significant increases in energy costs and the pressures in recruitment. We have tried hard to find ways to minimise the impact on our business, but the situation is so challenging that these kinds of measures alone may not be enough for many SMEs.

“We are very lucky to have always been closely supported by our relationship manager at Allica Bank, but I know this is not the case for many other businesses. Banks will play a critical role in helping SMEs to weather the current storm and I believe there has never been a more important time for banks to connect and engage with their customers and offer support – whether it’s through advice, additional lending, extensions of maturity of obligations, easing covenants, or any other facilities they may have available to them. While the market is challenging, I believe that by failing to help businesses, banks will lose the opportunity to build a relationship and in turn strengthen their portfolio in the future.”

The Government’s new energy freeze policy will go some way to offering support for businesses like Ashley Care, with over half saying it will be critical to keeping their doors open. Almost three quarters (73%) of businesses surveyed, however, don’t believe the support will last long enough, potentially leading to more insolvencies.

The picture painted by the data is also supported by Allica’s network of brokers. Chris Field, Head of Care & Hospitality at Sirius Property Finance said the number of business owners applying for funding to help them survive in the current climate, and to some extent ‘futureproof’ their business, has more than doubled.

“There has been a deluge of businesses seeking funding to cover the increasing costs of maintaining their businesses. This covers everything from essential capital expenditure to maintaining the business premises, to covering wage bills and supporting interest payments for financial commitments,” he says.

“We have seen an increase in enquiries where applicants are looking to refinance their business, and this is usually due to their current facility approaching its renewal date (and the new terms on offer being untenable). So they are looking for us to run a process to identify preferable terms, or they are looking to refinance to release equity and reinvest in the business, expand, or carry out improvement work. A good example of this is in the hotel and hospitality sector, where the quality of the asset can often dictate KPIs, which ultimately impact revenue and net cashflow.

“If we don’t all sort this out, the Government’s levelling up agenda and its attempts to bounce back from the current crisis are at risk of being just ‘soundbites’ rather than something resembling reality! These businesses are vital to local communities given the activity they generate, who they serve and who they employ.”