Coronavirus: Small businesses will collapse unless action taken

New research shows that the Government needs to do more to save small businesses in the wake of the coronavirus crisis.

The research, compiled by Vala Capital and the Enterprise Investment Scheme Association (EISA) based on feedback from more than 250 SMEs, shows that:

• 71% of small firms won’t survive six months without funding
• equity funding for small businesses in the UK has collapsed by 70% or more since the outbreak of Covid-19 – this is across all equity funding platforms
• nine out of 10 growth businesses needing investment now may disappear within 12 months if Government fails to act, with the loss of millions of jobs and tax income

The research forms the basis of a campaign, backed by more than 6,000 SMEs and led by investment manager Vala Capital, calling for the Government to provide a £600 million lifeline to small businesses through increased investor tax reliefs. The campaign is supported by influential industry leaders including EISA, Wealth Club Crowdcube, Sapphire Capital, Kuber and Seedrs.

Many of the most innovative early-stage companies – those working on technologies, systems and processes that can have a profound impact on society – are at risk of closing because they are not eligible for the Coronavirus Business Interruption Loan Scheme (CBILS), while take-up is slow. SmallBusiness.co.uk surveyed 1,823 small businesses, of which 53% said their loan application had been rejected since the scheme was overhauled on April 3. The survey chimes with business secretary Alok Sharma’s admission that only 4,200 loans worth £800m have been awarded, despite more than 300,000 enquiries – a conversion rate of just 1.4%.

The campaign’s call for an immediate increase in the tax allowances available to investors from 30% to 60%, would complement other proposals – such as a Runway Fund – to support UK small businesses. According to the research, 59% of SME’s said relaxing the Enterprise Investment Scheme (EIS) rules would lead to a rise in equity funding available to them.

Many growth businesses rely on equity-based investments in their initial development years. Yet the impact of the crisis has seen most private investors withdraw from making investments threatening the survival of some of the UKs most innovative companies. Having access to equity capital is essential, the campaigners say.

Jasper Smith, founder of Vala Capital, says: “We cannot afford to lose the potential value of the country’s most innovative businesses. Once these companies are lost, recovery for most is irreversible. A short-term relaxation in the terms of the EIS scheme, matched by parallel funding, is critical if we are to see these businesses prosper. Entrepreneurs are key to economic recovery during and post coronavirus. We need their vision and determination, their stubbornness – and the learning both their failures and successes have created. With the right Government support, entrepreneurs can act as the cornerstone of rebuilding our nation.”