Small businesses turning to finance as confidence starts to return

According to Hitachi Capital Business Finance, more than half (56%) said they were considering taking on finance for some of the plans they had set for 2021, up on the 53% in the same quarter last year.

This comes as confidence among small businesses has steadily been returning since the outbreak of coronavirus. In Q4 2020, over a quarter (27%) said they expected to grow in the next three months, up from 13% in Q2 2020. Meanwhile, the proportion expecting to scale back fell in this quarter, also to 27%, down from 59% in Q2. 

The top reasons businesses were considering borrowing money included increasing headcount (29%), launching new products and services (27%) and running an advertising campaign (22%). Interestingly, comparing the results from last year, the proportion of businesses using finance to move to larger premises fell (from 20% to 16%), as working from home became the norm this year.

This was particularly the case for businesses in the finance sector (falling from 24% to 9%) but also the hospitality sector (falling from 24% to 11%). By contrast, however, the proportion of businesses in the retail sector considering finance to move premises increased from 19% to 34%, as these businesses adapt to the changing dynamics within the retail space and online demand. 

Meanwhile, the number of businesses using finance to launch into new segments in 2021 slightly increased on a year ago (from 17% to 19%), reflecting the trend in businesses adapting and pivoting in the new environment. Again, this was most apparent in the hospitality sector (rising from 7% in 2019 to 18% in 2020), but also in the medical sector (rising from 13% to 27%). 

The research also found that online businesses were more confident about growth in the next three months, and more likely to have plans to borrow money than offline businesses. A third (34%) of businesses that operated predominantly online said they expected to grow in the next three months, compared with 20% of largely offline businesses. Plus, 61% of online businesses had plans that involved financing, compared with 55% of offline businesses. 

Online businesses were found to be twice as likely to be using finance to help launch new products (16% vs 9%), pitch for major accounts/new business (12% vs 6%), or launch into new segments (17% vs 8%), as offline businesses. 

Joanna Morris, head of insight at Hitachi Capital Business Finance, said: “Despite a bruising year for small business in the UK, confidence levels are starting to return among some sectors, not far off levels we saw before the outbreak of the pandemic. Business owners’ appetite for risk appears to be increasing, with plans being made that have been shaped by their experiences during lockdown.

This flexibility and adaptability is precisely the advantage smaller businesses have over their larger competitors, and we are seeing signs this is being used in this research. 

“The level to which businesses are embracing technology is a key factor in their confidence, and their plans for the next year. Confidence levels between businesses that have embraced technology and those that haven’t have been dramatically different throughout the events of 2020, and we continue to see differences with plans for 2021.

The pressure for businesses to embrace technology continues to mount, as those that have already reaped the benefits of their competitive advantage. The case for investing in a business’ tech agility has never been stronger.”