Toni Dare, MD, Pulse Cashflow Finance shares her view on the year ahead

As we happily say “au revoir” to 2020, I am sure we are all looking to 2021 to bring much needed cheer and a return to “normality” when it comes, whatever its guise.  Despite an air of positivity across the business landscape there remains uncertainty as to what 2021 will bring and businesses are quite rightly concerned about the future – it will remain challenging for everyone but there is an increasingly positive mood amongst the business population.  It would be great to have a crystal ball but, failing that here is my view as to what 2021 may look like.

Looking forward needs to be on the agenda

Covid-19 has wreaked havoc worldwide with most businesses impacted in one way or another.  The first lockdown halted many businesses in their tracks as they adjusted to the unknown.  But with lockdown 2.0 now over, their resilience, has shone through with many firms finding ways to continue servicing customers with others innovating their way out of the crisis.  Some sectors are continuing to maintain income levels whilst some are thriving. Latest research* suggests that 42% of businesses are increasingly looking and planning forward.

There are sectors of course, especially the events and hospitality that have been hit harder not only businesses operating in that sector but throughout their supply chain.  They of course are rightly occupied with the aftermath of the pandemic with 25%* of businesses still focussed on ensuring their businesses survive.   With income reduced many businesses have been forced into making redundancies to cut costs and give their businesses the best chance.

My advice to those businesses is to keep holding on and do everything they can to protect their business knowing that things are getting better.  It might feel like two steps forward and one back at the moment, but with the vaccine rollout continuing, with it will come the end of restrictions and we can once again get back to business in earnest.  In the meantime, businesses must continue to maximise the support that is on offer and focus on removing the non-value added costs in their business.  Most importantly they must keep talking to their funders to see what solutions can be offered to get their business through to the other side.  There is positivity in the air, and planning for how they seize the opportunities when they arise is so important.  There is light at the end of the tunnel.

Expect but plan to minimise disruption from Brexit

However, Covid-19 isn’t the only challenge facing UK businesses.  Brexit is here!  The day of reckoning is upon us and as we write with deadlines extended it would appear that there is the slimmest of pathways for a deal to be done.  Whatever the outcome of discussions, for those businesses who buy, use or sell products to and from Europe, you must expect disruption.  Information is available from Government websites -  https://www.gov.uk/transition - to help plan for how you continue to trade from 1st January 2021.  Planning is key to ensure you have all the documentation in place to aid the movement of goods or continue employing EU workers.  You need to keep up to speed with what import or export tariffs might be introduced that will affect the cost of your goods.  Keep in contact with your customers – remember it is relationships that make business happen.

I believe that we will see UK businesses increase their reliance on each other.  Research what opportunities will arise in the UK for your goods from businesses who used to import from Europe.  The future will be populated with both threats and opportunities but looking forward and putting plans in motion will help.

Demand for funding outside of Government backed loans will return

The Government offered unprecedented support to businesses during 2020 not only in terms of business rates relief, tax deferments but also government backed loans.  To date £42 bn have been provided to businesses in the form of Bounce Back Loans (BBL) and a further £14bn in CBILS.  As time has gone by the number of firms accessing these loans has increased with latest statistics showing that in Q3, 40% of firms were using them (up from 30% in Q2) which is expected as the toll from the crisis on a firms’ finances continues.  

However, as access to these loans cease on 31 January 2021, it is inevitable that we will then see businesses begin to have to pay back these loans and catch back on any HMRC deferments.  As funds dry up and businesses run out of cash having used these loans to support their businesses, through the crisis, demand for finance solutions will begin to return.  Outside of CBILS and BBL, other forms of finance which have supported UK businesses until the pandemic hit have seen a decline in demand as would be expected. Latest figure show that 34% of businesses are happy to borrow to support business growth which is positive news for the finance industry.

Insolvencies will rise

Recent headlines stated that the economy dipped again as a result of Lockdown 2.0 following a rebound during late summer and Autumn.  With growth registering at 0.4% in October as restrictions set in, we must expect a roller coaster ride into terms of economic growth over the coming months as restrictions continue.  With this will bring an increase in insolvencies as firms who are balancing on the edge may find they can’t continue any longer.  However, life will begin to return to normal and I predict that economic growth should start to see a consistent growth trend in the second half of 2021.

And what of the finance sector?

With surplus funding courtesy of the Government backed loans, many financiers have seen a decline in demand for their funding solutions. For businesses who secured these loans with low rates and lengthy pay back terms, it is inevitable that the ride may have been bumpy.  I expect 2021 to bring some consolidation of funders as they seek to broaden their offering to the market whilst bringing efficiencies to their firms.  But I do believe demand will return as optimism returns.

And in conclusion

The UK will continue to face considerable challenges in 2021 but businesses have shown their resilience in what has been the toughest year of my career.  There are those who will say that the worst is still to come but I believe that we will see an increasing amount of good news which will lessen the impact of the bad.  I am encouraged by the fact that businesses are looking ahead and as a funder, we will be here to help them access the finance they need to capitalise on the opportunities as they arise to secure their futures and get us all back on track.

* SME Finance Monitor by BVA BDRC – November 2020