Alex Williams
Alex Williams  —

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How COVID-19 Impacted Small Business in UKThe COVID-19 pandemic wreaked havoc across companies big and small in 2020. In particular, the lockdown proved highly daunting for small and medium-sized enterprises (SMEs).

But what is the economic impact of COVID-19 on UK small businesses? How were employees affected exactly?

Which industries are still reeling most from restrictions? Also, what forms of government assistance have been released — and which are the best?

We answer these questions and contextualize them with pre-pandemic conditions and industries. For this detailed report, we sifted through the numbers and figures to provide the most meaningful and relevant information — in the hope of helping you better navigate these rough waters and sail through the ‘new normal’.

Check out what we’ve uncovered below.


How COVID-19 Lockdown Impacted Small Businesses: UK Study 📚

Before the coronavirus disease hit and resulted in severe lockdown restrictions, SMEs in the UK were in a great spot in terms of employment numbers and economic contributions.

Key UK Business Stats (Pre-COVID) 📊

According to the 2020 report on business population estimates by the UK Department for Business, Energy, & Industrial Energy, the UK private sector had 6 million businesses in the private sector at the onset of 2020. This was higher by 113,000 compared to 2019 findings.

Only 0.1% had a minimum of 250 employees or were large businesses while medium-sized businesses accounted for 0.6%. Thus, small businesses dominated in sheer numbers, with 99.3% or 5.94 million businesses

Contribution of different sized businesses to total population

Source: UK Department for Business, Energy, & Industrial Energy

To be fair, large and medium businesses fared better in terms of employee numbers with 39% (10.9 million) and 13% (3.5 million), respectively. But small companies alone were responsible for 48% or 13.3 million private-sector jobs.

SMEs Leading in the UK and US 👨‍💼

As you can see, small businesses are one of the major economic pillars — and it’s something the UK shares with the US. Granted, they differ in their definition of what a small business is:

Small businesses in the US have no more than 499 employees, as defined in the 2019 Small Business Profile by the Office of Advocacy of the US Small Business Administration. On the other hand, small businesses in the UK only have between 0 to 49 employees.

But the predominance of small businesses remains for both as 99.9% of businesses in the US are small businesses. They have 59.9 million employees, which is 47.3% of the US employee total.

2019 small business profile

Source: US Small Business Administration Office of Advocacy

SMEs generated a huge £2.3 trillion turnover at the start of 2020, which is 52% of the total.

Specifically, small businesses contributed £1.6 trillion to account for 36 per cent.

This is close to how small businesses in the US represented 44% of the private non-agricultural gross domestic product (GDP) in 2014, at $6 trillion.

Industries and Retention Issues  ⚠️

But in which industrial sectors were UK-based SMEs most prominent before the coronavirus’ economic impact?

The construction sector led in its share, with 17% or 992,000 SMEs. Regrettably for construction workers, COVID-19 inevitably hampered operations — but more on that later.

Professional, Scientific, and Technical activities had a 15% share or 872,000, while Wholesale, Retail Trade, and Repair formed 9% or about 552,000. Rounding out the top five SME industrial sectors were Administrative and Support Service Activities and Information and Communication.

Industrial sectors with most SMEs

Source: UK Department for Business, Energy, & Industrial Energy

And before we head to the next section, we must acknowledge that small business owners already had employee retention issues.

In 2018, Aldemore reported that 20% of SMEs had high employee turnovers — and 32% couldn’t hire appropriately qualified people in the first place.

A career change was the top reason among SME employees who left, and only 13% transferred to a fellow SME in the same sector.


How Small Businesses Have Been Affected

Business as Usual Prior to COVID-19 🖨️

As a quick recap, we’ve identified 5.94 million or 99.3% of businesses in the UK private sector as small businesses before the pandemic arrived. They employ 13.3 million people (48%) and yield £1.6 trillion (36%). From 2019, the overall business population has increased by 113,000.

SMEs in the Lockdown: Key Figures ⚡

unemployment rate

Source: UK Office for National Statistics

The Office for National Statistics (ONS) revealed that the overall unemployment rate in the UK went up from 4% in January to March 2020 to 5.0% from November 2020 to January 2021.

Their labour market overview for January 2021 indicated that record-high job losses occurred between September and November 2020.

During COVID-19, jobs weren’t as stable as they seemed.

The London School of Economics even reported that one million self-employed individuals were looking to quit. If you’re self-employed, COVID-19 most likely ruined your weekly workload and earnings.

Now, let’s focus on how small businesses fared once the lockdown began in March 2020:

A September 2020 coronavirus study by Small Business found that 67% of SMEs paused their trades at one point.

Unfortunately, 234,000 were forced to permanently cease operations. Small businesses in London, Scotland, and North East England had the highest income losses in the UK, with the SMEs in the capital losing an average of £17,074.36.

Looking at the ONS business data published in November 2020, only 6.1% of large businesses temporarily stopped operations. In contrast to them were micro-businesses (0 to 9 employees) and the rest of small businesses (10 to 49 employees) with 17.2% and 11.8%, respectively.

percentage of businesses

Source: UK Office for National Statistics

However, the impact of COVID-19 on SMEs varied among industries:

A COVID-19 survey by McKinsey & Company indicated that over 90% of SMEs in agriculture, logistics, and construction suffered revenue losses.

Given the constant close contact and interactions among construction workers, COVID-19 instantly put a stop to their operations. On the other hand, those in the education, finance and insurance, and scientific fields faced fewer or less drastic problems.

Over in the US, 7.65 million or 47% of jobs lost during the pandemic were from the leisure and hospitality industry.

Going back to the Small Business report, 35% of small business owners sought financial help from family and friends while 22% resorted to credit cards — only 8% relied on private banks for COVID-19 loans.

What About Government Support? 🗳️

businesses using government support

Source: McKinsey & Company

Sure, the COVID-19 help for self-employed individuals is already on its fourth grant.

But as for support for SMEs, it seems only 56% of SME owners benefited from government support 53% found its eligibility criteria and access to it difficult.

McKinsey & Company also revealed that 52% of SMEs applied or are planning to apply for tax-payment deferrals.

The next most favoured option was furlough payment at 50 per cent. As for an SME business loan, COVID-19 pushed it up to fourth place — just behind business-rate reliefs.

The Future of SMEs 🤖

A COVID-19 survey by the Enterprise Research Centre revealed that 21% of reflections by SMEs on the pandemic revolved around future uncertainties. Interestingly, another 21% were about how they adapted to the pandemic and experienced increased demand and found new market opportunities.

Many SMEs introduced online delivery services, social media accounts, and offered new products and services last year, according to the Simple Business coronavirus study.

Another study revealed that 61% of small businesses fear they'll succumb to the economic problems arising from the pandemic — and more than 50% expect to lose all their money within a year.

On the bright side, the Federation of Small Business reported that 58% of member companies were optimistic about their business performance in the first quarter of 2021. Now that there are vaccines against COVID-19, jobs may soon flourish among SMEs.


How the Government is Easing the Coronavirus Impact on Our Economy 💷

Government aid stats

Source: Government of the United Kingdom

The UK government knows that these lockdowns are putting a heavy toll on businesses.

For those who are self-employed, COVID-19 caused much less or even no work at all.

Similarly, the government understands that SMEs need help, which is why a wide variety of support was released:

VAT Payment Deferral 🔖

VAT payments were deferred for three months from 20 March to 30 June 2020. Small business owners can pay the full deferred tax by 31 March 2021 or apply for the new online payment scheme by 21 June 2021.

Furlough Payment 💰

The Coronavirus Job Retention Scheme (CJRS) helps SMEs retain their employees during the pandemic by paying up to £2,500 of their monthly salary until 30 September 2021 — it’s the best COVID-19 guidance for employees financially.

Business-Rate Relief 👔

Business-rate reliefs were granted to nurseries and businesses in the retail, hospitality, and leisure industry. In England, for example, qualified companies weren’t required to pay for the tax year 2020 to 2021.

Loans 💸

SMEs had the Bounce Back Loan wherein the UK government allowed them to loan an amount ranging from £2,000 to 25% of their net sales figure or turnover. No fees or interests were added during the first 12 months.

The Bounce Back Loan was only until 31 March 2021, but now the British Business Bank has the Recovery Loan Scheme, another business loan COVID-19 made necessary as it persisted well into the first quarter of 2021.

This provides loans from £25,000 up to £10 million and has been available since 6 April 2021. The highest possible interest rate is 14.99% — and lenders are encouraged to keep rates to a minimum to help businesses in these trying times.

Coronavirus Statutory Sick Pay Rebate Scheme 💉

SME employers who paid the COVID-19-related Statutory Sick Pay (SSP) of their employees will receive an amount equal to up to two weeks of SSP.

Eviction Protection 🛡️

A moratorium preventing commercial landlords from evicting small businesses was enacted in March 2020 and has since been  .

Additional Restrictions Grant 🚫

Local councils can grant funds of up to £10,935,000 to eligible businesses that have suffered greatly because of the imposed lockdowns since 2020. The grant includes the Small Amounts of Financial Assistance Allowance, COVID-19 Business Grant Allowance, and COVID-19 Business Grant Special Allowance.

Covid Corporate Financing Facility (CCFF) 💊

This helps cash-strapped businesses that have proven to be financially sound before the pandemic by buying commercial paper with a maximum maturity period of one year.

Coronavirus Business Interruption Loan Scheme (CBILS) 💼

Available only until 31 March 2021, the CBILS had 117 participating lenders. It’s one of the biggest small business COVID-19 loans — and it supported SMEs with an annual turnover of no more than £45 million.

Up to £5 million in loans and other assistance were granted to each qualified business. Eighty per cent of the loan was guaranteed by the government — and the same goes for interest and other payments during the first 12 months.

Future Fund (FF) 🔮

The scheme was closed on 31 January 2021 and provided UK-based firms with convertible loans. Depending on the match funding they received from private investors, businesses could acquire COVID-19 loans ranging from £125,000 to £5 million.


COVID-19 Guidebook: Overcoming COVID’s Economic Impact

how to protect yourself from covid

Source: World Health Organization

According to the World Health Organization (WHO), COVID-19 is mainly passed onto others by coughing, sneezing, or through saliva droplets.

An infected individual who speaks, sings, or heavily breathes close to you can let out the virus in the form of tiny liquid particles — and a single one getting into your eyes, nose, or mouth is all it takes to be COVID-19 positive.

People have also been infected because they had direct contact with a contaminated object and then touched their face.

Consequently, aerosol transmission is possible in particular settings.

Given these proven methods of COVID-19 transmission, you can protect not only yourself but also your employees and clients by adhering to the following preventive measures:

Practice Social Distancing

Even if you think others aren’t COVID-19 positive, you should be at least 1 metre apart.

After all, they might just be asymptomatic (no symptoms at all) or pre-symptomatic (no symptoms yet but will develop them later on).

Wear a Mask

Three-layered fabric masks that follow national performance standards are good enough for the general populace. Medical masks are suitable for those with health conditions, are feeling ill, or people at least 60 years of age, among others.

Maintain Good Hygiene

Use a tissue, handkerchief, or simply cover your mouth or nose with your elbow when you’re about to cough or sneeze. Wash your hands frequently and properly. Use soap and water or alcohol-based hand rub, the latter of which you should always bring around.

Clean Surfaces

Aside from avoiding touching surfaces in public areas when possible, you should have disinfectants for regularly cleaning surfaces in your place of business.

Consider Your Business Location

Ensure your area has good ventilation and that preventive measures are followed, especially if it’s an indoor space where people typically gather and socialize for a long time.

Essential Tips for SME Owners ⚙️

Help your employees in order to help yourself! Take a look at the key tips for SME owners:

  • ☑️ Teach employees new skills
  • ☑️ Stay informed
  • ☑️ Connect with people online
  • ☑️ Prepare for the short and long haul
Teach employees new skills

The future of your business depends on its people. Thus, you should provide the necessary resources and training to help your employees learn new and future-proof skills.

Many of these skills involve digital technology, but even just helping employees become multi-skilled individuals will improve the flexibility and efficiency of your business.

Stay Informed

Not all lockdowns are the same. And with new COVID-19 variants, you need to know exactly what’s going on. Check for recent, small business news UK media sites.  Knowing what the latest restriction and coronavirus study mean for your business operations will help you make proactive decisions.

Connect With People Online
wash your hands WHO

Source: World Health Organization

This applies to both clients and your professional social network — and it’s a solid form of COVID-19 help for self-employed folks too.

As more businesses establish their digital presence, you should keep up and learn more about your customers (and potential customers).

Provide an easy way for them to talk to you online regarding your products and services.

Likewise, look for online forums and communities for SMEs.

You’ll be surprised at how much you can learn from others about running a small business during a lockdown.

Prepare For the Short and Long Haul

The UK government is doing what it can to speed economic recovery with COVID-19 loans, but you can never be sure that the most recent lockdown would be the last.

Craft a financial forecast for the next few months and see which contracts you’ll need to renegotiate.

On the same note, prepare a long-term business outlook.

With the coronavirus, small business employers have to ensure that their operations will remain whether the pandemic is gone in two years or not.


FAQ

How Can I Ready My Business to Apply For Government Financial Support?

Money BagThere are different requirements for all the small business loans COVID-19 had made possible since 2020.

But the key here is to organize and properly store both online and offline business reports and other documents.

SME owners can avail of the Statutory Sick Pay Rebate Scheme if they have the SSP records and know crucial employee details such as their National Insurance number and when and why they had their sick days. Also, you must keep these details at least until 31 December 2014.

As for the coronavirus Additional Restrictions Grant, you’ll have to contact your local council for the application details. And if you want to apply for the Recovery Loan Scheme (RLS), you must first find an accredited lender to see how much they can offer.

The RSL lender will likely request that you prove your business was affected by the COVID-19 pandemic and that it’s operating in the UK. Thus, you should prepare everything from historic accounts to asset reports and management accounts in advance.

Where Can I Receive Financial Support and Funding to Keep My Business Operating?

The UK government has released different kinds of financial assistance to SMEs since the first lockdown on 23 March 2020.

Programs such as the Bounce Back Loan Scheme and Future Fund but SME owners still have the recently announced Recovery Loan Scheme, which is poised to assist business throughout the year.

Similarly, the Coronavirus Job Retention Scheme (CJRS) was extended to 30 September 2021.

If you have an England-based business that’s part of the non-essential sector such as personal care, gym, and retail, you can ask your local council for a coronavirus Restart Grant, which was only announced on 1 April 2021.

We recommend reading small business news UK outlets, on occasion. And if you need more sources of monetary support, you should consider private bank loans, credit cards, and simply borrowing from your family and friends.

How Do I Keep Employees, Who Interact With Customers, Safe?

profile-circled-iconHere’s the first rule of the COVID-19 guidance, for employees:

Ask them to wear the right mask and to wear them properly — no crisscrossing of ear loops or constant touching of the front of the mask.

Likewise, have a sizable text display reminding customers to wear a mask and practice social distancing. Help your employees ensure that seats and floors have easily comprehensible visual indicators to guide customers on where to sit or stand.

For cashiers or anyone who will interact the most with customers, they should have a transparent screen or plastic panel to maintain an unobtrusive physical barrier.

If your business is accepting cash payments, the transaction should not involve direct contact between your employee and the customer.  This can be implemented by simply providing a small tab or any box for customers to place their money and get their change from.

Lastly, make sure that the business site has the necessary personal hygiene items and equipment for both employees and customers. Encourage frequent washing of hands and cleaning of surfaces and objects in the workplace with disinfectant sprays and other cleaning products.


Conclusion

The coronavirus’ impact on the economy and SMEs, in particular, has changed the landscape in such a short time. Many UK-based SMEs struggled — 234,000 had no choice but to permanently shut down.

And compared to large businesses, micro and small businesses were likelier to pause operations. Furthermore, most SMEs in the agriculture, construction, and logistics sectors reported the most revenue losses.

Some SMEs successfully adapted to the lockdown situation and unlocked economic opportunities. Others were concerned about the future. Thankfully, the UK government has and still is providing financial assistance to SMEs.

The pandemic may not yet be completely over, but with the vaccine programme in full swing, small business owners in the UK may not have to wait so long to once again return to economic normalcy.

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