Third of smaller businesses expect to close within a year

More than one in three (35 per cent) UK SMEs do not expect to be in business beyond a year, according to a new report by Fladgate, a law firm which serves the SME market.
Jeremy Whiteson, partner at FladgateJeremy Whiteson, partner at Fladgate
Jeremy Whiteson, partner at Fladgate

Fladgate said its Restart Capital report paints an alarming outlook for the backbone of the UK economy. A fifth (20 per cent) of SMEs consider their business to already be in distress, with a further 64 per cent just about surviving on current support measures as Covid-19 disrupts supply chains, causing devastation to sales and soaring debts.

The research found that SME leaders are not reacting quickly, with many yet to accept the economic reality and react to save their businesses.

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Fladgate said one in three SMEs (31 per cent) still claim to be in a “shock and denial phase” or “anger and depression”, which may hamper their ability to decide how best to move forward.

The law firm said investment is badly needed to help SMEs survive. The report found that 72 per cent of SME leaders are trying to raise money to ride out the storm, but 46 per cent have not succeeded as hoped. It said that SMEs are one of the major sources of employment in the UK and this threatens a wave of job losses.

Fladgate said the flow of private capital to pressured SMEs could be the solution. The Restart Capital report found that private investors are willing to deploy capital to support SMEs, with nine in 10 investors (90 per cent) recognising SMEs are the key to the UK economy.

It said investors see highest investment potential in supporting troubled businesses, with over a third (37 per cent) of investors interested in distressed companies. It added that the sectors hardest hit by Covid-19 are often the most attractive.

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Construction, which has experienced the biggest hit to turnover - dropping by 39 per cent - is seen as the most attractive sector for investment, with 29 per cent of investors keen to invest in this market.

Fladgate said this is a reality many SMEs are failing to appreciate, with one in three (36 per cent) SMEs believing the current climate is unfavourable for access to finance and investment.

Jeremy Whiteson, partner at Fladgate, said: “This should be seen as a loud Mayday call by UK SMEs. As the bedrock of the UK’s economy, any recovery plan must address the needs of these firms.

“Government support cannot and will not continue forever. Private investment, therefore, presents a long-term and sustainable solution for troubled SMEs. As Government support schemes draw to a close, private investors provide not only critically needed capital but invaluable guidance and support as businesses look to recover financially.

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“It’s encouraging that investors are willing to step in and start committing capital to the UK’s troubled businesses. However, the Government needs to be taking more action to facilitate and encourage the deployment of this investment.”

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