Coronavirus: One in five small firms forced to cut staff as loan applications rise

Suban Abdulla
·3-min read
Man and woman preparing loaves of bread in bakery
One in five small firms have reduced staff over the last three months. Photo: Getty

One in five small firms in the UK have been forced to cut staff amid a split in performance expectation, the Federation of Small Businesses (FSB) reports.

In its Q2 Small Business Index (SBI), it shows a rise in finance applications along with approval rates following the success of the government’s Bounce Back Loan Scheme (BBLS).

The FSB hailed the success of the BBLS, which facilitated more than 1 million loans to small firms but called for a “guarantee that firms won’t have to start making repayments” until they’re turning a profit.

The survey revealed that over a fifth (23%) of business owners expect their performance to be “much worse” over the coming quarter compared with the last three months. This is up by 13 percentage points compared with this time last year but is down considerably on Q1 2020.

There was a significant rise (13%) in the proportion who expect their prospects to be “much improved” compared with the last quarter.

About 4% of the firms surveyed said they were hiring more staff compared with the 23% cutting headcount.

READ MORE: Growth in UK private sector hits five-year high amid surge in business activity

FSB chairman Mike Cherry said: “The majority of small business owners have benefitted from the government’s emergency support measures but many have not. We urgently need to see the Treasury outline how it intends to support those who have been left out, not least company directors and the newly self-employed.”

Cherry urged for additional help for companies being forced to stay closed while others reopen: “We have to avoid a scenario where those who’ve received support are able to navigate choppy economic waters over the months ahead while others are left to sink.”

A record-high three quarters (75%) of smaller companies reported that profits fell in Q2 of this year, up by 33 percentage points compared with Q2 2019. The vast majority (82%) say they are operating below capacity.

Among exporters, two-thirds (65%) report a drop in international sales – only 12% report an increase. The share expecting a rise in exports over the coming quarter is, however, in-line with Q2 2019.

READ MORE: Coronavirus: Most UK employers expect to hire more staff soon

Cherry added: “There was a lot to welcome in the chancellor’s summer statement where efforts to increase job creation and retention are concerned.

“Government at all levels should do more to help small firms putting protective measures in place. In England, they’ve had to absorb the costs of making their premises safe for reopening.

“Enabling them to reclaim expenses linked to these measures and access face coverings easily will help to keep our high streets safe.”

Speaking on lockdowns he said, it was “important that affected firms are not left stranded without support,” and that new local authority powers should be exercised sensibly and where required councils should have the “freedom to draw on funds” to support small firms.

The study also shows a rise in small business finance applications – one in three (34%) respondents sought new facilities over the past three months, up 20 percentage points on the same period last year.

The success rate for applications has hit an all-time high (81%), and the proportion offered borrowing rates under 4% (85%) was also up.

According to government data there are more than 16 million people currently working for smaller businesses, equating to 60% of the private sector workforce.

The FSB study, which surveyed 1,486 small firms at the end of June 2020 covers a range of economic indicators including: small business confidence, employment and wages, exports, productivity, spare capacity, finance and investment.

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