Earlier this year, the launch of the Bounce Back Loan scheme proved to be a milestone moment for hundreds of thousands of SMEs across the UK. It provided them with the lifeline they needed – quick and easy-to-access business loans, straight into their bank account. For many SMEs, this was the first time they had managed to get access to financial support.
However, with £58 billion already loaned to businesses through government schemes, such as the Bounce Back Loan Scheme, Coronavirus Business Interruption Loans and the COVID Corporate Financing Facility, it is unclear how these loans can be repaid, particularly as the threat of another lockdown will slow any recovery progress.
Although the Bounce Back loans have helped to plug the gap for many small businesses across the UK, once applications for the Bounce Back Loan scheme close on 30 November, SMEs may find themselves burdened with an unsustainable debt, and will still need financial support to adapt to the new environment.
One way around this is to focus more on equity investment, as opposed to loans which will leave SMEs with large debts. Non-bank lenders such as private equity investors play a critical role in providing finances to businesses that are not served by larger banks.
While government schemes have helped small businesses to stay afloat, any amount of debt for SMEs is a challenge to pay back, particularly during this time when cash flow and balance sheets are under intense scrutiny. Many SMEs are on the road to recovery, and have managed to survive COVID-19 so far, but have taken on a lot of debt that will still need to be paid back. What we need to see to offset this and allow small businesses to not only recover, but thrive, is support from private equity funding.
Private equity through schemes such as the Enterprise Investment Scheme (EIS) will be crucial to unlocking the growth potential of these firms. The funding that schemes such as this provide – without the added burden of debt – could help give SMEs the freedom to grow and scale without worrying about the added complications of servicing debt.
The small business community and its success is as important to the economy as anything else in the near future. With an economic contribution of over £2tn, the success of the UK economy as a whole may in future hinge on the prosperity of SMEs, start-ups and high-growth firms.
There are fantastic businesses across the country with a huge amount of growth potential that may be slipping through the net if they do not receive vital growth funding when they need it. IW Capital work with a range of innovative, growing SMEs that are likely to drive our private sector forward in the coming years.
To find out how IW Capital could maximise your investment opportunities, please contact the team today on 020 7015 2250, or email email@example.com