New figures from trade body UK Finance have revealed that in the first nine months of 2020, banks lent twice as much to SMEs in the UK as they did during the whole of 2019. The majority of these loans came in the form of government backed schemes such as the 100% guaranteed Bounce Back loan and Coronavirus Business Interruption Loan Scheme - which is 80% guaranteed by the government.
While these loans have helped more than 1.5 million small firms through one of the toughest years on record, this level of lending is unlikely to extend to firms looking to now grow and expand. Optimism among businesses of all sizes has increased dramatically since November, with the FTSE's growth over the past few months serving as an early indicator of investor sentiment towards growth.
This also serves to demonstrate the importance of investor confidence in businesses as well as markets. Government backed equity schemes such as the Enterprise Investment Scheme have helped encourage private investors to provide over £25 billion worth of funding to growing small businesses since its introduction.
Luke Davis, CEO of IW Capital:
“Britain has always been a nation of shopkeepers, and the UK's community of small business owners and entrepreneurs will be key to our economic recovery in 2021. The amount of lending in 2020 demonstrates the difficulties that many of them faced but for those looking to future growth and opportunity, they may feel further debt is neither the right option or readily available.
Funding from private investors will be a key part of our economic recovery and the success of small businesses that were previously creating jobs at a rate three times as fast as large firms. One example of this is a small firm IW Capital invested in at the start of the pandemic, throughout innovation and adaptation they have now doubled their staff and grown massively.
The ambition and optimism is clearly there and now firms will need the support of equity funding is they are to grow and reach their potential."