We present a new data set to analyze the impact of the Covid-19 crisis on SME cash flows. The crisis has led to a sharp decline in economic activity in the UK, which has hit SMEs harder than large companies. The dataset contains monthly information on all 2 million SMEs with current accounts or debts with nine major banking groups with a total of around 5 billion data points. We document some basic facts about the cash flow of UK SMEs during Covid-19. (1) The virus and public health interventions coincided with a 30 percentage point decline in the turnover growth of the average SME. (2) The turnover shock in SMEs was significantly heterogeneous, with the largest declines among young SMEs in consumer-oriented sectors taking place in Scotland and London. (3) Cash flows remained broadly unchanged on average and the heterogeneity of SMEs was significantly lower. (4) SMEs whose average turnover increased in 2020 were the most likely to benefit from the main state-guaranteed loan programme for SMEs as well as for SMEs in the hospitality sector in the most prosperous regions of the country. Our analysis provides a framework for monitoring SMEs as the sector recovers from the pandemic.
The Covid-19 shock has reduced the cash flow of many companies. Small businesses are more likely than large firms to operate in the sectors most affected by the shock (Figure A), such as accommodation and food supply, arts and recreation, and construction. What does this mean for the economy? Is the worst over now? Can anyone once again manage the successful businesses they ran before the pandemic and generate tax revenue for the underpressed Treasury to repay the £372 billion it spent supporting the country during COVID-19? The Fiscal Policy Committee will deepen its analysis and monitor developments in small business financing in the coming months. The cash flows that were found supported some of these companies in difficult times. To give just one example, the Soho House Members Club (full disclosure: I am a member) required members to pay for their memberships monthly during the two periods during which it had to be closed, but credited the amount to their spending accounts when they reopened. More than 95% of UK businesses are small and medium-sized businesses with fewer than 250 employees. They account for about 45% of total income and about 60% of employment in the private sector. They therefore make a huge contribution to the British economy.
In 2020, after restrictions eased in June, overall retail sales quickly returned to pre-pandemic levels, while hospitality and entertainment recovered much more slowly or not at all – despite the government`s Eat Out to Help Out program. In January and February 2021, when non-essential retail was closed again, sales were again affected, but the decline was much smaller than in early 2020, suggesting that retailers and consumers had adapted to the restrictions. To address data constraints, we used machine learning to model small business cash flows. This suggested that fiscal policy would provide material support, but that they could face an overall cash deficit of around £40-70 billion this year, resulting in liquidity needs. Typically, small businesses have fewer external financing options available than large companies. However, government-backed loan programs – particularly the Rebound Loan Program – have significantly increased lending to these companies. More than one million loans have been granted under this scheme. Meanwhile, business start-ups in 2020 have not suffered – 772,002 new businesses have been set up in the UK, up 13% from 2019. Many have traveled to sectors that have benefited from the pandemic, such as manufacturers of personal protective equipment (PPE) or disinfectants, campsites for all staycationers and takeaway food companies. Many small businesses operate with very little debt, but there are a significant number of highly indebted small businesses (Figure B).
Share of small and large enterprises in the total assets of enterprises operating in each sector, classified according to the magnitude of the expected trade shock The holiday programme has also brought unemployment under control, contrary to forecasts. In April 2020, the worst month for economic activity during the entire pandemic period, the government`s Office for Budget Responsibility (OBR) published a baseline scenario in which unemployment would peak at 10% in the second quarter of 2020 and fall to 8.5% and 7.0% in quarters 3 and 4. In fact, the highest unemployment rate in 2020 was 5.1% in Q4. While food retail was booming – and now that we`re all going out to eat again, we`re seeing the decline – the other retail business, especially the one anchored on the main street, has a long history of closures. Arcadia, Victoria`s Secret, TM Lewin, Jaeger, Harveys Furniture, Bonmarché and many others found themselves in the administration, despite a 100% reduction in the business rate and many other government initiatives to help them. There have been predictable successes, of course. Amazon, Royal Mail, Hermès, DPD – all those who deliver to the door – have all done well. If you`re hitting the UK, it was a record 12 to 18 months. By James Hurley, Sudipto Karmakar, Elena Markoska, Eryk Walczak and Danny Walker Impact of the Covid-19 crisis: evidence from 2 million UK SMEs This has contributed to 92% of members remaining registered in 2020. With more than 59,000 applicants as of May 30, 2021, Soho House – the holding company now renamed Membership Collective Group – has weathered the pandemic in good enough shape to launch its IPO in the US this week and value the company at $2.8 billion (£2 billion). .