Small Business Advice

2021 started with another pandemic lockdown here in the UK, yet despite these challenges, small businesses and entrepreneurs have remained resilient through these uncertain times. It has been suggested that up to one in five UK residents now plan to start their own business rather than face the uncertainty of being unemployed.

Jürg Widmer shares the key 2021 lending trends for small businesses to help business owners and prospective new companies make the most of the opportunities on the horizon.

Economic Recovery in 2021

In August 2020, the UK was plunged into the first recession since 2008. This economic downturn has been the result of a global virus outbreak and not down to humans mismanagement. As the pandemic disruptions continue through 2021, the UK economy also faces its own set of challenges, as does the rest of the world.

The Office for Budget Responsibility forecast in November was promising, but their latest one is even more. “Government borrowing in June 2021 was £22.8 billion, down over 19 per cent from last year. Year-to-date borrowing of £69.5 billion is now £19.0 billion below our March forecast profile. That reflects both stronger-than-expected receipts (consistent with the faster economic rebound in recent months) and lower-than-expected spending (perhaps reflecting continued shortfalls in spending on pandemic-related programmes).”

Small businesses and self-employed folks have little to no experience navigating their way through a severe financial crisis; this has presented a sharp learning curve for everyone impacted by the Covid-19 pandemic.

The UK Government-backed furlough scheme will end as of September 2021. It is predicted that unemployment will peak at around 7.5% at this point. Rishi Sunak, the Chancellor of the Exchequer, stated that “hard choices will need to be made” to help tackle levels of national debt incurred throughout the Covid crisis. While the outlook did look bleak, as of summer 2021, it doesn’t seem as wretched as it did previously.

2021 Lending Trends for Small Business

In 2020, business lending grew by 8%, and the forecast suggests lending will increase by a further 5.4% in 2021 in response to businesses borrowing to stabilise or grow as we recover from the damage of the pandemic.

According to a report by EY Item Club, banks lent over £35bn to businesses in 2020. A further £26bn is forecast to be lent by the end of 2021. EY Item Club suggested that firms are unlikely to start repayments until 2024 due to the continued economic uncertainty.

The UK financial sector is supporting businesses through a challenging and unprecedented time, and lending growth is forecast to remain historically high through 2021.

Consumer credit is forecast to increase by just over 2% in 2021, after falling by a record 9.9% in 2020. Mortgage lending is also expected to increase by similar levels and further in 2022. With household savings at an all-time high, consumer spending is expected to increase throughout 2021.

Thankfully, because banks went into this challenging situation well capitalised, they are in a solid position to weather the storm and lending for small businesses will continue to help them recover and rebuild.