Two years on from the Bounce Back Loan Scheme

It comes as no surprise that startups have been among the hardest hit since COVID hit the world in 2019. According to new data from Muse Finance, the number of startups has decreased significantly from two million to just over one million due to business failures and fewer new corporations.

Despite SME’s accounting for over 99% of UK businesses, there is still a £56m funding gap. Smaller businesses face significant challenges in accessing finance compared to their larger counterparts.

Ann Juliano, CEO and Founder of Muse Finance said: “Supporting these businesses with more accessible and tailored funding options will be vital in the coming months as commercial activity picks up post-pandemic."

Two years since the Bounce Back Loan Scheme was introduced, it’s an important time to reflect on how startups and SMEs have fared in the challenging circumstances the pandemic has presented.

The Bounce Back Loan Scheme (BBLS) was introduced on 4th May 2020 at the height of the pandemic, aiming to give businesses better access to finance during their most challenging months. Businesses that were incorporated by 1st May could apply for a loan of up to £50,000 with the government paying interest for the first 12 months. This allowed businesses to benefit from zero upfront costs, however after this, businesses were required to pay back the loans with interest. Over 1.5 million UK businesses took out the loan.

With the UK living through a cost-of-living crisis, Muse Finance is speaking with business owners who have already raised concerns about their ability to survive and are now facing pressure of interest payments for the BBLS or Coronavirus Business Interruption Loan Scheme (CBILS) on top of this.

Ann said: “Reduced trading in the UK, labour shortages, critical supply shortages (of items such as semiconductors), and increased production times have also put increased pressure on small businesses.”

Both the BBLS and CBILS were put in place under the assumption that businesses would be back to pre-pandemic levels within 12-months, which has not been the case for many. These loans have therefore put a burden on businesses in terms of repayments by expecting them to be in a period of growth after the initial 12-month interest free period.

“This is why it is important for small businesses to consider more flexible, and sustainable financing solutions, such as invoice finance, which can provide instant access to funds on something they are already expecting to receive as opposed to relying on the condition they will grow,” added Ann.

Closing the funding gap

Top of the list for closing the funding gap between SME’s and bigger corporations is helping businesses see their short-term cash flow to plan for the future: “We're helping to tackle this with more sustainable solutions for working capital like trade finance, supply finance and invoice finance,” said Ann.

Beyond this, Ann said there need to be market-wide changes to improve access to funding for smaller startups. Fintech is already leading this change.

Small businesses face the challenge of traditional banks usually using traditional methods to assess creditworthiness and risk. Therefore, firms with minimal credit histories often struggle to secure a loan.

“Now, through proper use of data analysis and access to open banking, fintech’s are now able to get around the problem of SME's lack of credit history to provide funding.

“Banks should be paying close attention to how improvements can be made in this area or they will risk losing a vital customer base,” concluded Ann.