# Where do small businesses turn when government support dries up? Author: Pal Sinha, Barnali Author URL: https://financedigest.com/author/pal-sinha-barnali Published: 2021-09-29 Category: BUSINESS Category URL: https://financedigest.com/category/business Meta Title: The Future of Business Lending Post-Pandemic Meta Description: Learn how small and medium-sized businesses can secure alternative lending to bridge the gap left by diminishing public funding, as discussed by Scott Donnelly. URL: https://financedigest.com/where-do-small-businesses-turn-when-government-support-dries-uphtml ![undefined](https://prod.superblogcdn.com/site_cuid_cm5qst7v3003gwirgwqtxn8i8/images/young-contemporary-businessman-remote-working-sitting-outdoor-in-the-city-using-smart-sbi-304208388-1736837737369-compressed.jpg) ![](https://prod.superblogcdn.com/site_cuid_cm5qst7v3003gwirgwqtxn8i8/images/scott-donnelly-450x599-1736837737327-compressed.jpg) _By **Scott Donnelly,** Director of Board at CapitalBox_ The UK’s economy has been on life support for the last year-and-a-half, but Britain’s businesses cannot rely on many more months of help from the public purse. As it became clear that almost every country would use lockdowns to defeat the pandemic, governments around the world moved quickly to provide emergency support for businesses. But while measures such as [loans and furlough schemes certainly helped many businesses](https://www.financedigest.com/types-of-business-loans.html "Types of business loans") to avoid folding, the appetite to continue this funding is fast diminishing. With recent figures suggesting that [£5 billion of Covid loans may never be repaid](https://www.ft.com/content/4718b01e-aae9-4d1e-a39a-3b7d6675c551), the UK’s small and medium-sized businesses (SMBs) must prepare for the money taps to be abruptly turned off. While the past 18 months have been a nightmare for SMBs, we’re only now entering the most dangerous time of the whole pandemic. Global [trade is recovering](https://www.financedigest.com/eu-recovers-appetite-for-trade-in-green-industry-push.html "EU recovers appetite for trade in green industry push") slowly and fitfully; there will be no sudden return to normal for months or years. Yet somehow SMBs must survive without the [support they have enjoyed since the crisis](https://www.financedigest.com/5-ways-to-support-your-employees-during-the-cost-of-living-crisis.html "5 ways to support your employees during the cost of living crisis ") began. The good news for SMBs is that there are other sources of [financial support](https://www.financedigest.com/how-to-support-employees-amid-financial-strains.html "How to support employees amid financial strains") available to help them bridge the gap. The key is understanding how to find and access alternative lending that will tide them over until economic recovery truly takes flight. _Business lending soars_ Much attention has been given to government [support for businesses](https://www.financedigest.com/how-technology-can-support-insurance-business-growth.html "How technology can support insurance business growth"), such as the Coronavirus Business Interruption Loan Scheme in the UK and the Corona Soforthilfen in Germany. These programmes have seen widespread take-up, with CapitalBox’s [research showing that a third of Europe’s](https://www.financedigest.com/gumgum-powers-into-europe-as-new-research-shows-consumers-reject-behavioural-ads.html "GumGum Powers into Europe as New Research Shows Consumers Reject Behavioural Ads") SMBs have taken advantage of such support schemes. But there is another, less-told story of the pandemic, which is that in spite of government help many [businesses have been forced to take out loans](https://www.financedigest.com/1-in-3-uk-businesses-looking-for-finance-are-finding-it-harder-to-get-a-loan.html "1 in 3 UK businesses looking for finance are finding it harder to get a loan") to cover operational costs. This summer, CapitalBox polled SMBs and found that [business loans have hit a five-year high as cash-strapped SMEs have had to supplement public schemes to keep](https://www.financedigest.com/keeping-an-eye-on-company-purse-strings-where-do-businesses-go-wrong.html "Keeping an eye on company purse strings – where do businesses go wrong?") the lights on. Our research found that over half (56%) of UK SMBs took out a loan during the pandemic, with 36% using the money to cover overheads and 20% to pay wages. The figures show the limitations of government support, with private loans to cover workforce costs spiking to 14% in the same month that the UK’s furlough scheme was announced. Twelve months on, the figure remained high at 9%. We don’t want to lay the blame entirely at the government’s door: they have responded to a once-in-a-century crisis with a range of unprecedented measures. Even so, it’s clear that SMBs feel they could have been better supported. While two thirds have benefited from the furlough scheme, one in three have received [tax relief](https://www.financedigest.com/adding-revenue-through-rd-tax-relief-service-2.html "Adding Revenue through R&D Tax Relief Service") and two in five have accessed government loans, a large proportion (42%) of SMBs in our survey said they felt the government could have done more to support them. We can argue about the government’s duty to [continue supporting](https://www.financedigest.com/adnami-appoints-burnett-and-bukholt-to-support-continued-expansion.html "Adnami appoints Burnett and Bukholt to support continued expansion") SMBs until the cows come home, but it won’t change the imperative of finding new sources of funding. That’s a task every [small business](https://www.financedigest.com/small-businesses-run-out-of-cash-before-they-run-out-of-potential.html "Small businesses run out of cash before they run out of potential") should be making as their first priority. _Bridging the gap_ The bank is the first place most people turn when they need a loan, and it’s the same for [small businesses](https://www.financedigest.com/interest-rates-are-cut-to-an-all-time-low-what-will-this-mean-for-small-businesses.html "Interest rates are cut to an all-time low. What will this mean for small businesses?"). Our research found that retail financing – a form of [loan set up to pay back in instalments to those with good credit](https://www.financedigest.com/6-reasons-to-take-a-car-loan-from-a-credit-union.html "6 Reasons to Take a Car Loan From a Credit Union") ratings – was the first choice for more than half (55%) of SMBs in Europe. But it’s far from the only source of funding. For example, one in five SMBs relied on credit cards, 11% turned to online loan providers, and a quarter (24%) went to that traditional lender of last resort: families and friends. While retail financing is by far the most popular form of lending, when it comes to accessing cash to [keep the business](https://www.financedigest.com/keeping-data-connected-for-greater-business-value.html "Keeping Data Connected for Greater Business Value") going, variety is key. [Every business is different in terms of needs](https://www.financedigest.com/10-secrets-every-entrepreneur-needs-to-thrive-in-2023.html "10 Secrets Every Entrepreneur Needs to Thrive in 2023"), credit rating and resources. But accessing a range of funding sources is becoming even more important as traditional [bank lending dries up in the face](https://www.financedigest.com/analysis-u-s-banks-face-trillion-dollar-reverse-repo-headache.html "Analysis: U.S. banks face trillion-dollar reverse repo headache") of stricter lending policies. [Small businesses therefore need](https://www.financedigest.com/small-businesses-and-scams-what-you-need-to-know.html "Small businesses and scams: What you need to know") to cast the net much wider. It’s critical that they research what grants or other funding programmes for which they may be eligible. Many regional government institutions provide financial support programmes for local businesses, and this can be a great way to kickstart your [business by investing in innovation](https://www.financedigest.com/disruption-and-innovation-four-predictions-for-the-business-landscape-in-2016.html "DISRUPTION AND INNOVATION – FOUR PREDICTIONS FOR THE BUSINESS LANDSCAPE IN 2016") – or just to keep paying the wage bill. Like bank loans, these [require meeting](https://www.financedigest.com/lack-of-collaboration-and-skills-shortage-is-limiting-organisations-ability-to-meet-ifrs-9-requirements.html "Lack of collaboration and skills shortage is limiting organisations’ ability to meet IFRS 9 requirements") strict criteria and providing a lot of paperwork. What’s more, these business [financing](https://www.financedigest.com/6-ways-to-spring-clean-your-business-finances.html "6 ways to Spring clean your business finances") options are not necessarily available for just any business. These programmes are often directed to specific industries or areas like agriculture, technology or the environment. You’ll only know what’s available if you start searching what’s available in your local area. Another source of [business lending is invoice financing](https://www.financedigest.com/5-ways-to-improve-your-business-finances.html "5 Ways to Improve Your Business Finances"). This is a relatively new option that enables [businesses to borrow money](https://www.financedigest.com/how-to-save-money-on-business-tripsabroad.html "How to save money on business trips abroad") against unpaid invoices. The downside is that, like any loan, lenders will claim a percentage of this money on [top of other expenses](https://www.financedigest.com/top-expensive-car-brands.html "Top Expensive Car Brands") for the service – although for many businesses, this is a lifeline they’re perfectly happy to pay for. Another option is a “quick money” solution. Merchant cash advances are not loans as such, but an option for companies with [bad credit scores](https://www.financedigest.com/5-ways-to-grow-your-business-despite-a-bad-credit-score.html "5 Ways to Grow Your Business despite a Bad Credit Score") that can qualify based on future credit card sales. Although these advances tend to be the easiest to get, it is important to read the terms and conditions carefully to understand the costs for using a service. As with any important financial decision, do your research and read the [small print to find out which is best for your business](https://www.financedigest.com/10-dirty-tricks-for-small-businesses-to-watch-out-for-when-negotiating.html "10 dirty tricks for Small Businesses to watch out for when negotiating"). A well-established online lender for businesses can make your life easier and provide a loan tailored to your [business’ needs](https://www.financedigest.com/4-kinds-of-software-your-new-business-needs.html "4 Kinds of Software Your New Business Needs"). Let’s not pretend that the winding up of government support schemes isn’t a blow for the nation’s [small businesses](https://www.financedigest.com/2021-the-year-of-the-global-workforce-for-british-small-businesses.html "2021: The Year of the Global Workforce for British small businesses "). It will mean that having survived the worst of the pandemic, more SMBs will go to the wall. That’s a tragedy for all concerned.  But we are lucky in one respect: there has never been a greater range of [financing available to businesses](https://www.financedigest.com/tips-for-choosing-the-right-chief-finance-officer-for-your-business.html "Tips for Choosing the Right Chief Finance Officer for Your Business") of every size. There’s every chance that you too can find the [funding you need](https://www.financedigest.com/need-additional-funding-but-not-sure-how-to-go-about-it.html "Need additional funding but not sure how to go about it?") to make it through to the long-awaited recovery. --- This blog is powered by Superblog. Visit https://superblog.ai to know more. ---