The Office for National Statistics has revealed that the UK plunged into recession during the second quarter of the year.
GDP slumped by a staggering 20.4% to put the country into recession for the first time since the credit crisis of 2008.
Douglas Grant, director of Conister Finance & Leasing Limited, said: “Today’s figures confirm that the UK is not now just formally in a recession, but also that it is the deepest recession in UK history as well as the deepest of any of the G7 economies. We are facing a significant downturn that could last well into late 2021 and the economy will be hurt by both SMEs closing and mass redundancies for a significant part of the workforce. While yesterday’s unemployment figures hadn’t surged as much as initially feared, the full effect will not be felt until the furlough scheme ends in a few months while at the same time, there is a dangerous trend re-emerging in the SME sector. Since 2008, alternative lenders have risen in prominence, working alongside larger more traditional clearing banks, offering a funnel of vital liquidity through tailored and flexible lending solutions to SMEs.
“Today there are significant amounts of private capital waiting to be invested in resilient SMEs and the market share of clearing banks has fallen significantly in a far more diversified lending sector. In the last 12 years, banks have also become much better capitalised than during the global financial crisis. Previously businesses could service debt from remaining cash flows with little or no capital for investment which resulted in a zombie status for many UK SME borrowers. It appears a swathe of zombie companies are re-emerging and according to The City UK, it is estimated that businesses may build up £100 billion of debt by next March which they would be unable to repay with 780,000 SMEs in danger of insolvency.
“SMEs are not just the lifeblood of the economy, it is where innovation and creativity happens. Since the epidemic took hold, the UK Government has been quick to back sectors that are resilient to recessions and market volatility, providing financial security and protection through initiatives such as the bounce-back loans scheme. It is imperative that SMEs have a tripartite level of sustainable support from government, alternative and traditional lenders working together to identify and protect the more resilient sectors such as infrastructure, technology and renewables, ensuring their existence guaranteed. This is where alternative lenders that understand the characteristics of specialist SMEs and with the flexibility they offer, empower their staff to make judgement calls on capital requirements often in the infancy stage of lending, can provide the additional support and natural lending progression alongside the larger clearing banks. Larger clearing banks will not be able to keep the UK SME sector alive by themselves.”
