Has Covid created a financial timebomb for SMEs?


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This time last year, chancellor Rishi Sunak quickly announced several lending programmes for companies affected by Covid and resulting lockdown.

With loans, tax relief and cash grants available to support businesses, the idea was to prevent a wave of insolvencies, as firms struggle to stay afloat during the pandemic.

Lending facilities like the Bounce Back Loan (BBLS) and the Coronavirus Business Interruption Loan Scheme (CBILS) were designed to give businesses access to finance quickly, and the light touch checks for borrowing have resulted in over 1.5 million loans being issued since they launched. With no interest or repayments due for 12 months on loans of up to £50,000, the BBLS was easily accessible and has been a lifeline for many.

Papering over the cracks

Government support has undoubtedly helped businesses in financial distress but may also be distorting the fuller picture: that there are many companies who, were it not for the furlough scheme in particular, would possibly have stopped trading by now. Insolvency rates have so far remained low despite many businesses being badly hit by the pandemic.

The BBLS comes to an end soon, and repayments will begin to be due. For many businesses in the sectors that have been hardest hit, there is concern over how to make these repayments. Mike Cherry, chairman of the Federation of Small Businesses, has suggested that a constructive way to help small businesses out of this period could be to adopt a student loan model- where repayments are only made once a firm is profitable again.

So far the Government’s response to the end of the BBLS has been to announce the Recovery Loan scheme, aimed at businesses that can afford to take on additional debt to help with managing cashflow, investment and growth. Due to launch on 6th April, the details for this new debt finance programme are still to be confirmed, but the likelihood of qualifying for the loan, or even wanting to take on more debt at this stage means that it will not be an option for many.

The Office for Budget Responsibility has predicted an expected default rate of 40.4% on BBL and CBIL finance, with 59%companies having borrowed more than 20% of their turnover. Combined with the downturn in sales during the pandemic, the UK could be looking at a record number of insolvencies.

If you believe your company is struggling with some of the early warning signs of insolvency, such as continual difficultly making payments, defaulting on bills, or frequent cashflow problems, speak to your accountant or adviser about your options and what the next steps should be for your business.

Helping you get back on track

As we move into the summer, support measures from the Government will surely evolve, but having a system for keeping your cashflow healthy, and staying on top of your payments, are two of the best ways you can help to protect your business:

Look ahead – in short increments.

If your business has been struggling, take time to plan ahead in small chunks of time. This can help you take stock of all your outgoings and make decisions about what to cut, trim back or extend.

Having an understanding of your business credit score is an important part of keeping your business profitable, and can help you gain access to finance when you need it, potentially with lower interest rates. Keeping your business credit score as high as possible, can also affect whether a new supplier or client decides to work with you, any red flags on your credit score may be a deterrent.

Maximise business cash & reduce debtor days

Late payments are an ongoing burden for SMEs, and in the current climate could make or break your cashflow. Having a robust invoicing process, with clear terms and conditions that work for both parties, can avoid customers hanging on to your hard-earned cash longer than absolutely necessary.

If you need help managing late payments, we can provide you with a correspondence plan for you to put into practice, including detail for weekly calls and follow-up letters, or if you prefer, we can look after it on your behalf.  

Re-establishing financial stability can be hard, and there’s no denying the past year has been tough for the UK’s small businesses, but often following a time of uncertainty, there comes a period of opportunity and potential. Business owners have shown resilience, despite the bleak economic backdrop, which should help us “switch the focus from survival to growth”.


If you’d like more information, or need to talk to us further about how we can help you identify opportunities and limit any impacts caused by Covid-19, get in touch with our team on 01322 555 442 or


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