ThinCats hails resilience of mid-sized SMEs during Covid
Medium-sized enterprises borrowed less money during the pandemic, and are less likely to enter into insolvency than smaller firms, according to new research from ThinCats.
In a new report titled ‘The impact of Covid on mid-sized SMEs”, the business lender revealed that between April and December 2020, 18 per cent of mid-sized small- and medium enterprises (SMEs) borrowed a total of £20bn. By contrast, 35 per cent of small businesses borrowed £45bn.
As a result, mid-sized SMEs increased their total borrowing by 1.8 times normal levels, compared to a 6.3 times increase for small businesses.
Meanwhile, mid-sized businesses made a 60 per cent increase in net cash balances compared to pre-pandemic levels, whereas small businesses made cash increases of just five per cent.
“This report provides a timely insight into how SMEs have coped with the challenges of the pandemic,” said Ravi Anand, managing director of ThinCats.
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“The SME sector is often seen as a homogenous group, however, these findings show big differences in the financial resilience of the mid-sized compared to small businesses.
“The data show that mid-sized SMEs have come through the pandemic in pretty good shape.”
The report also found that SME insolvencies reached a record low in 2021 due to the government funding schemes which were in place.
ThinCats has predicted that insolvency rates for mid-sized businesses will return to pre-pandemic levels, while the rate of failure for small businesses is likely to be significantly higher than before the pandemic.
“Looking ahead, we often see periods of increased indebtedness followed by rising insolvencies,” added Anand.
“Given that government support helped many businesses survive that would normally have failed, there is also an element of catch up to consider when predicting future insolvencies. We expect mid-sized business insolvencies to rise, but thanks to their relatively high net cash levels, only to rates similar to those experienced before the pandemic.
“For small businesses, who have used up their cash much more quickly, there could be a much sharper rise in business failures to numbers well above pre-pandemic levels. Much will depend on their capacity to meet their interest payments, particularly for those that are first-time borrowers.”
ThinCats was one of the few alternative lenders which was authorised to offer the government-backed coronavirus business interruption loan scheme and its follow-on, the recovery loan scheme.
ThinCats operated under a peer-to-peer lending model until 2019, when it shuttered its retail lending business to focus on institutional funding lines.
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