CapitalBox reports SMEs to try to bridge the Furlough finance gap

By Joy Dumasia

Loans were taken out by UK small businesses to cover workforce costs spiked from 1% in March 2020 to 14% in April 2020, according to CapitalBox data. This comes after the initial announcement of the Government’s Coronavirus Job Retention Scheme, also known as the furlough scheme, which failed to cover the entire workforce costs for many SMEs in those first crucial months of the pandemic.

This resulted in a record five-year high for issued loans from CapitalBox and points to a worrying trend as, despite being in an already dire spot, SME owners were forced to borrow more to keep their businesses afloat.

On top of paying wage bills, small businesses have faced other critical financial challenges in the last year, according to CapitalBox research:

• 34% were unable to reinvest in their business to survive
• 25% were unable to pay their employees
• 25% turned down work

SMEs relied heavily on financial support, with two in three (65%) UK SMEs have benefited from the furlough scheme, one in three (36%) received tax relief, and two in five (43%) leant on government loans.

As the Government furlough scheme winds down, trade changes affect and repayments on emergency loans start this month. At the same time, the number of wage costs employers need to contribute for furloughed staff through national insurance and pension will rise from 5% to 14%.

Scott Donnelly, Board of Directors at CapitalBox, said: “Government schemes, financial aid, and tax relief have proved to be the saving grace for many businesses, sectors, and the wider UK economy in the past year. But as these financial schemes end and businesses affected by lockdown delays can restart trading, governments must make sure though that SMEs have access to immediate cash to avoid a gap that could damage their business – whether that is through loan schemes or working with alternative lenders, is essential.”

Recently, IBS Intelligence reported that the Pan-European SME funding platform, CapitalBox, announced the Netherlands division of Spotcap Global.