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Despite having already reported an average loss of £251,471, SME business owners are now forced to spend £21,830 on average to fully reopen following the lockdown, with 21% planning to use their personal savings to cover the costs, according to research from Nucleus Commercial Finance.

The amount lost as a result of the pandemic varied from sole traders losing an average of £8,671, and medium sized businesses losing an average of £665,299.

According to the report, 44% of businesses that have already reopened following the lockdown found that implementing the newly required health and safety measures was the biggest cost factor. The second largest group cost factor was staff salary, which 33% of businesses selected.

Biggest cost factors when reopening business fully (those who had to close due to Covid-19)

Implementing new health and safety measures e.g. screens 44%
Staff salary 33%
Reconfiguring the layout of the space 26%
Investing in new technology e.g. apps, booking services etc. 22%
Restocking 21%
Rent restarting 16%
Product development 16%
New contactless payment systems 14%

Chirag Shah (pictured above), chief executive officer of Nucleus Commercial Finance, said: “The last few months have been a turbulent time for businesses both large and small across the country. Not only has the loss of income been devastating for many SMEs, but those businesses that are able to reopen in some capacity now face significant costs to ensure they can operate safely, putting a further strain on business finances.”

The research was conducted between 23-30 July, taking into account the views of 506 SME senior decision makers. It also found that respondents had an average of £29,983 of cash reserves available, although many business owners reported being reluctant to utilise the full amount to reopen as it may leave them in a vulnerable position if economic activity does not improve.

In order to meet the reopening costs, 28% of respondents planned on using cash reserves in the bank, 27% considered using Government support schemes and 21% planned on using personal savings.

Shah added: “We need to help SMEs not only survive the current pandemic, but thrive in the future. As such, we, as an industry, need to highlight the role that finance can play in the short-term, but also to support longer-term business goals and help them future-proof their business.

“During these uncertain times, business owners should rest assured that there are options available, and it’s our duty as an industry to educate them on the benefits of external finance. Together, we can help build a better future for SMEs, ensuring they are equipped to tackle further challenges, boost performance, and ultimately stimulate our economy.”

Established in 2011, Nucleus Commercial Finance aims to provide UK SMEs with a range of alternative funding options including secured and unsecured loans, business cash advances and a range of asset-based lending products.

Alternative lenders mustn’t be frozen out

Douglas Grant (pictured below), director of Conister Finance & Leasing, explained: “As a result of the pandemic it is estimated that the trend of businesses servicing debt from remaining cash flows with little or no capital for investment could develop further given the potential for businesses to build up £100 billion of debt by next March.

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“The UK Government has been quick to provide financial support through initiatives such as the bounce-back loans scheme, but alternative lenders that understand the very basic needs of specialist SMEs, can provide the additional support and natural lending progression alongside the larger clearing banks.

“Many clearing banks are working tirelessly to process emergency loan applications but with pressures piling up a lot of SMEs will become unsustainable, with some estimates predicting 780,000 insolvent SMEs. It was concerning therefore to see that alternative lenders are potentially unlikely to receive much financing from the Bank of England to deliver emergency government loans. It is crucial that clearing banks pass on finance from the Bank of England to alternative lenders and find a way to make it work on commercial terms. SMEs must have a tripartite level of support from Government, alternative and traditional lenders working together in these difficult times.

“As traditional banks deal with the impact of Covid-19 around their balance sheets, it is likely that they will have to pause financing discussions around succession and growth financing as well as recapitalisations, in order to redirect resources to addressing an enormous influx of CBILS applications from capital-starved SMEs. Those resilient SMEs who have weathered the pandemic best in their sector will be able to benefit from the potential acquisition opportunities to increase their market share and will need capital to carry this out. Alternative lenders have the know-how and flexibility to help process this type of financing quickly and effectively. Without legacy loan books and unencumbered by CBILS applications coupled with high levels of private capital waiting to be invested, alternative lenders working together with clearing banks can help to execute rapid credit decisions on flexible terms.”

Founded in 1935, Conister Bank offers both personal and commercial banking solutions including the provision of credit facilities and asset finance.

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