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Experts warn of ‘funding vacuum for SMEs’

30th September 2020

A group of leading professionals and CEOs, representing law firms, accountants, investment managers and UK businesses, have warned that smaller SMEs will struggle to access funding in the wake of the pandemic, meaning that many will struggle to survive.

The group agreed that, whilst both banks and private equity investment were active, smaller SMEs were not typically viewed as attractive for lending and investment, particularly at the lower end of the market, with banks remaining conservative and private equity “awash with cash” but often “not interested in writing a cheque for less than £5 or £10 million”.

The comments come as a result of a thought-leadership debate chaired by Kathryn Paisley, Partner and Head of Corporate at Sussex and Kent based law firm, Rix & Kay. During the debate, the group discussed the long-term strategic options for businesses and the implications of Covid-19 on business owners planning for exit.

As a result of the potential ‘funding vacuum’ the group concluded that a secondary market needs to emerge that could prove pivotal to the longer-term sustainability of smaller SMEs.

The wider outcomes of the thought-leadership debate have been published in a full report entitled, What is ahead for UK business – Critical planning as the pandemic unfolds’. The report provides invaluable commentary for UK business leaders who are considering their long-term strategic options.

Key outcomes from the report include:

  • The pandemic has “called on business leaders to step up to the plate” and “completely changed the way they look at business going forward”.
  • The pandemic has demanded strong leadership and strategic planning. Without it, businesses are more likely to fail. In particular, strong leadership is considered a vital ingredient for businesses looking to secure investment.
  • Whilst businesses in certain sectors have experienced severe distress, there are still many success stories. In particular, it is those businesses that have not only adapted quickly to a rapidly changing environment but those that have also been capable of demonstrating and addressing future sector challenges post pandemic, that have prospered.
  • The pandemic has led to greater tensions in the boardroom. Management teams are becoming divided on how to move forward. Some want to invest to “protect the business and realign for the next generation”, whilst less optimistic individuals want to find a way to exit relatively quickly. As such, “board decisions are becoming more cautious, short-term and pessimistic” because of people leaving.
  • The rapidly-changing dynamics between employer and employee are a major challenge for most businesses. HR teams are likely to be over-worked and under stresses from both ends. Businesses will want to use the pandemic to review their workforce, whilst employees are more likely to be uncomfortable with the way they are working and will want to change.
  • The next Budget will be a landmark moment for the UK economy as it looks to recover from the pandemic. HMRC will have to raise taxes at some point but the big question is when and how?
  • The moratorium on winding up petitions (now extended to the end of 2020) will have a “massive impact” with most professionals predicting “a boom in petitions and CVAs” particularly given “aggressive strategies” that some landlords and HMRC might deploy to pursue enquiries.
  • Whilst timing will be critical and there will be a limit on what HMRC chooses to do, it was suggested that “HMRC will need to tone down on policy grounds otherwise there could be a storm”.

About the thought-leadership debate

The debate took place on the 25 August and consisted of the following attendees:

  1. Kathryn Paisley, Partner and Head of Corporate, Rix & Kay (Panel Chair)
  2. James Gardner, Managing Director of Sinclair Rush and Vice Chair of Institute of Directors (Kent)
  3. Adam Richardson, Chairman, Quattro Group
  4. Dan Batchelor, Corporate Manger, Handelsbanken
  5. Zahir Kasmani, Investor, BGF
  6. Jack Clipsham, Corporate Finance Partner, Kreston Reeves
  7. Peter Drown, Senior Partner, Beavis Morgan
  8. Chris Sparkes, Tax Partner, Lubbock Fine
  9. Julie Sebastianelli, Director, Hurley Partners
  10. Tim Sadka, Corporate Partner, Rix & Kay
  11. Bruce Clarke, Partner and Head of Private Client, Rix & Kay

For a full copy of the report email scottgarner@rixandkay.co.uk