How Business Has Been Impacted in The Uk During the Pandemic

How Business Has Been Impacted in The Uk During the Pandemic

Small and medium-sized enterprises (SMEs), are the bread and butter of the UK economy. In fact, they represent 99.9 % of the almost six million UK businesses in 2019. SMEs have been severely impacted by the coronavirus pandemic, resulting in many being forced to close after facing unaffordable costs and depleted cash reserves. Over two thirds (69%) of SMEs experienced problems with cash flow, and over one third (35%) feared they’d opened their doors for the last time. Those numbers were in spite of government support in the form of grants, the Coronavirus Job Retention Scheme (CJRS), and emergency business loans. Governments around the world have invested in the economy with the intention to stimulate demand. Many UK SMEs had to leverage their business if they wanted to survive through the pandemic. While excess levels of debt can offer a temporary fix, both SME survival rate and the economic recovery rate will depend on whether there will be a second wave of infections or not. If so, it will also depend on the presence of a vaccine that works, and the growth of entrepreneurial activity and productivity.

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Temporary Closures

On March 23, 2020, the government announced that non-essential businesses were to cease trading as part of the UK’s efforts to combat the virus. It was then when SMEs began to feel more severe effects. Over a 15-day period, ending on April 5, 81% of businesses operating in the food and accommodation industries, along with 82.2% of recreation, arts and entertainment businesses, paused trading or temporality closed in response to the announcement. In this period, 26.2% of business in the UK with under 250 staff paused trading or temporarily closed.

Bad Debt and Lost Earnings

It was expected that the business closures would leave SMEs with debt servicing expenses and mounting rent at a time when they were unable to bring in much revenue. Around one in three SEMs believed they could pay business costs up until July. Three in four stated they couldn’t maintain their expenses for any longer than one year. According to one report from small business insurance firm Simply Business, the pandemic would cost each SME close to £12,000 in earnings, loan repayments, and lost work. Added to that, one in four SMEs incurred bad debt, with an average write off of £34,500. In response, the government created the Small Business Grant Fund to help small businesses in England with operational costs. However, the £70,000 grant was only accessible by those businesses that occupied property and met the eligibility requirements for small business rate relief. As such, many SMEs couldn’t access the fund. This meant that SMEs needed any support from the government they could possibly get. In response, the government established the CJRS, whereby the government would reimburse the wages of 80 percent of furloughed workers, up to £2,500 per month each. The plan was to minimize layoffs.

 Business Has Been Impacted in The Uk

Hardest-Hit Sectors

Hospitality has been among the most severely affected sectors during the pandemic, and not just in the UK, but around the world. Bars and pubs, full-service restaurants, and holiday accommodation have also been among the most affected. While many hospitality businesses reopened in July, most operated under capacity thanks to having to adhere to guidelines around social distancing that restricted the number of customers able to be located inside the venue at any one time. SMEs were generally worse-off than larger companies as the latter, as at least had access to cash reserves from shareholders with a high net worth.

Wrap Up

In summary, SMEs have been severely affected by the pandemic. Increased debt and renal costs have caused numerous businesses to depend on loan schemes to make it through the pandemic. The CJRS scene also proved crucial in limiting mass layoffs, as well as minimizing the short-term effects of the pandemic. Hospitality has been one sector that has been especially affected as a result of its activities associated with travel and large gatherings: two things that had to be avoided in order to slow the spread. Coronavirus has resulted in more people looking at starting businesses, as well as small businesses assessing how they can target their prospects more effectively. Both of these actions are expected to help support the economic recovery in the UK. The rate of recovery, however, will partly depend on the presence of a second wave of coronavirus and how long it would take for there to be an effective vaccine.

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