SMEs increasingly bullish as confidence starts to return

Furthermore, 27% of respondents forecast growth in the next three months, up from 13% in Q2 2020 when the pandemic was in full throttle. The proportion of small businesses expecting to scale back decreased in this quarter to 27%, down from 59% in Q2.

Competition in the SME market remains as alive as ever, with only a slight dip to 23% in Q4 2020 compared to 26% in 2019;

The research also illustrated a rise in the appetite to invest in new vehicles using finance solutions, growing from 14% in Q4 2019 to 18% in Q4 2020. In addition, modernising IT capability and purchasing new IT equipment remained at 22% in the period, the same level displayed in the year before.

The research also revealed a drop in the proportion of businesses using finance to move to larger premises, from 20% in Q4 2019 to 16% in Q4 2020. This is most likely to be attributed to the dramatic rise of home working.

Breaking this move away from large office spaces down by sectors, only 9% of businesses in the finance sector were seeking finance for this purpose, compared to 24% in Q4 2019. The hospitality sector witnessed a similar drop from 24% in Q4 2019 to 11% in Q4 2020. However, the proportion of businesses in the retail sector considering finance to move premises increased from 19% to 34%. In the report, HCBF stated that this could be attributed to “the changing dynamics within the retail space and online demand.”

Joanna Morris (pictured above), head of insight at Hitachi Capital Business Finance, explained: “Despite a bruising year for small business in the UK, confidence levels are starting to return among some sectors, not far off levels we saw before the outbreak of the pandemic. Business owners’ appetite for risk appears to be increasing, with plans being made that have been shaped by their experiences during lockdown. This flexibility and adaptability is precisely the advantage smaller businesses have over their larger competitors, and we are seeing signs this is being used in this research.”

Meanwhile, 19% of respondents were seeking finance to expand into new segments over the course of next year, marking a marginal increase from 17% in Q4 2019. According to HCBF, this was most apparent in the hospitality sector which rose from 7% in Q4 2019 to 18% in Q4 2020. Similarly, the medical sector rose from 13% last year to 27% in Q4 2020.

The research also found that some 34% of businesses that operated predominantly online were expecting growth in the next three months, compared with 20% of largely offline businesses. Furthermore, 61% of online businesses had plans that involved financing, compared with 55% of offline businesses.

Online businesses were found to be twice as likely to be using finance to help launch new products (16% vs 9%), pitch for major accounts/new business (12% vs 6%), or launch into new segments (17% vs 8%), as offline businesses.

Morris added: “The level to which businesses are embracing technology is a key factor in their confidence, and their plans for the next year. Confidence levels between businesses that have embraced technology and those that haven’t have been dramatically different throughout the events of 2020, and we continue to see differences with plans for 2021. The pressure for businesses to embrace technology continues to mount, as those that have already reaped the benefits of their competitive advantage. The case for investing in a business’ tech agility has never been stronger.”

Based in the UK, HCBF offers a range of business asset finance products including hire purchase, finance lease solutions, stocking and block discounting to both SMEs and larger corporations directly or via its network of brokers and vendors. With an asset portfolio of more than £1.3 billion, the company operates across multiple sectors such as transport, agriculture, construction and financial services providers.

Digital channels to the rescue

Digital channels are forecast to be the saviour for UK SMEs, as 31% are relying on the Christmas period to survive according to another piece of research from Nucleus Commercial Finance.

This research suggested that due to the economic impacts of the pandemic, 69% of SMEs are anticipating cut-backs in consumer spending this year.

However, businesses who have successfully integrated digital channels into their business models are likely to benefit from the additional business now available to them. For example, 80% of respondents believed that more shoppers would go online this year, while 41% anticipated an increase in customers shopping with them via online channels in the run up to Christmas.

Despite the potentially lean festive season and uncertainty surrounding the future, some 30% of SMEs also anticipate a boost in business as a result of shoppers staying local, with 11% believing they will be able to flourish over the next few months and start the new year in a good position.

Chirag Shah (pictured above), chief executive officer at Nucleus Commercial Finance, said: “SMEs are vital to the UK economy, so it is crucial we keep supporting them. Adaptability has been key this year – and we are likely to see those businesses who have been able to flex their models to accommodate lockdown restrictions and a need for online channels really reap the rewards this Christmas. And while the road ahead may be rocky, this gives the alternative lending space a chance to step up and demonstrate both commitment and support to our SMEs.”