Micro businesses could face additional hurdles in recovering from the Covid-19 pandemic compared to larger firms due to a greater reliance on the furlough scheme and a lack of confidence in seeking financial support, according to new research by iwoca.
HMRC data shows that micro businesses are significantly more reliant on the furlough scheme than larger firms.1 As of 30th September, 19.9% of eligible workers in micro businesses (1-9 employees) were on furlough, compared to 8.3% for medium enterprises (50-249 employees) and just 3.8% of large firms (250+ employees).
In addition, micro businesses have struggled to bounce back from the height of furlough scheme usage earlier this year. The most recent HMRC figures show that large businesses have recovered further with the number of eligible furloughed employees 80.7% lower than the peak in May of 3,448,500 workers. In comparison, 788,200 eligible employees in micro businesses were furloughed at the end of September, only 61% lower than the April peak of 2,024,900 staff.
The findings come as analysis of the new SME Finance Monitor data2 for Q3 2020 shows confidence in loan applications for micro businesses has dropped a third of the measure it was this time last year, with only 41% anticipating success. The confidence measure for the 3 months to August 2020 hit a historic 7 year low of 34% and was almost halved since Q3 2019 when 64% believed their application would be accepted.
Charmaine Silver, owner of Nottingham based cleaning business – Crystal Shine Cleaning Services Nottingham Ltd: “I have eight people in my business, including myself. I put four of them on furlough at the start of the first lockdown, and then brought everyone back in June. We’d lost a lot of our clients and were in the process of trying to build the business back up, but then the second lockdown hit. A lot of our clients went into hiding and I had to put my staff back on furlough. The business is facing difficulty in paying bills and overhead costs, but I’m determined to fight on and build it back up.”
The furlough scheme acts as a useful proxy for the health of the micro business community and the latest figures make the low measure of confidence in finance applications all the more worrying as firms could be discouraged from seeking the finance they need to support their post-pandemic growth. The need for more support is further highlighted in micro businesses having the strongest overall appetite for taking on finance out of all SME sizes in 2020.3
iwoca was founded to support micro businesses which are underserved by high street banks and larger lenders, and is committed to helping these smaller firms recover from the pandemic. iwoca aims to lend at least £200 million through the Coronavirus Business Interruption Loan Scheme (CBILS), with 83% of its loan approvals going to brand new customers over the past month. In further support of SMEs recovering from the pandemic, the firm has also pledged to lend £220 million to small businesses in the North of England by 2023.
Christoph Rieche, CEO and co-founder of iwoca added: “The gap between the demand for finance from micro businesses and their expectation of success for raising it is alarming. Many businesses have not been able to access funding via the Bounce Back Loan Scheme and need urgent support. We, alongside many other lenders, are committed to work with the big banks to find solutions to bring much needed finance to them.”