The Economic Impact of the Coronavirus on Small Businesses

Wondering what the actual economic impact the pandemic has had on small businesses in the UK? You came to the right place…

The question of how to recover a debt from a company might be on a few peoples’ lips these days. After all, the pandemic left many businesses unable to fend for themselves, and many may have had to resort to borrowing money.

With lockdown in the UK easing up gradually, it’s important to know exactly how the pandemic has affected businesses. What was the picture right at the start, how did it change and adapt, and what is the long-term picture looking like?

In this article, we hope to answer these questions, so don’t go anywhere…

The Impact on Small Businesses at the Start of the Pandemic

The beginning of the COVID-19 pandemic, and the subsequent lockdowns, saw businesses reeling. Not only was this a completely unprecedented situation, and something no one could have ever planned for, it also came on incredibly quickly. Overnight, retail and hospitality was closed, and people were shut away in their homes.

So, what sort of impact did this have initially on small and large businesses?

Small business owners were certainly quick to fear how much the coronavirus would cost them. Overall, the average cost most SMEs thought they’d lose was £11,779, a UK total of £69 billion. To add to this, businesses were concerned about repaying borrowed money, specifically the furlough scheme money.

Although 58 percent of small business owners felt supported by the government, over half of businesses didn’t know where to look for this support. What’s more, 44 percent were unable to access it. Some specific stats across the globe for the initial impact of the pandemic demonstrated that:

• 43% of businesses had temporarily closed.
• Nearly all of these closures were due to COVID-19.
• Businesses reported having reduced their active employment by 39%, on average, since January 2020.

Ultimately, the initial economic prospect for small businesses was frightening, having a huge knock-on effect on all areas of the economy.

The Impact on Businesses 6 Months into the Pandemic

By the six-month mark, numerous reports had come in which shed a light on how businesses had survived so far. For starters, a report by Simply Business showed some brilliant statistics, including:

• An estimated 234,000 SMEs have already permanently ceased trading.
• 67% were forced to stop trading at some point during the pandemic.
• COVID-19 is set to cost small business owners £11,799 on average.
• Almost 1 in 5 (17%) small businesses fear they wouldn’t survive another lockdown.
• 53% struggled to access government support or understand eligibility criteria.
• Over a third (35%) have borrowed cash from friends and family.
• 62% of SME owners feel less confident about the long-term prospects of their business.
• 41% fear their business is at risk of permanently closing.

Another report by Goldman Sachs also highlighted some key statistics in September 2020, showed that:

• Nearly 2/3 small businesses saw their revenues decrease.
• 44% of businesses had to cut jobs.
• 62% of businesses continued trading.
• 75% of businesses accessed the furlough scheme.
• 67% businesses took on external finances.
• 54% expect to see a growth in turnover in the next 12 months.

It’s certainly heart-breaking to hear how many businesses had to close their doors due to the pandemic. It begs the question of how many more won’t be able to open again now that the hospitality industry is back on the scene. Only time will tell.

The knock-on impact of the above stats could also continue well into the long-term. For example, fewer people in jobs means less people with disposable income. This means less people able to spend on the local economy now things are back open again.

What’s more, it means far less people being able to afford homes, and so on and so forth. Ultimately, the knock-on impact could be seen for years to come.

The Impact of COVID-19 on Businesses Now

One year on from the start of it all, and Simply Business published another survey. It revealed that COVID-19 is now “set to cost small business owners tens of thousands of pounds each”.

After surveying 1,200 self-employed and small business owners across the UK, it’s estimated that the overall cost is double what was initially predicted. The actual figure comes to £22,461, on average. This includes total revenue loss, as well as lost work and earnings.

Considering the six million small and medium-sized businesses in the UK, the overall projected figure to have been lost comes to over £126.6 billion. There are some who have even estimated that the pandemic would cost them over £50,000 overall.

On a more positive note, 25 percent of businesses believe trading will be back to normal by the spring or summer of 2022. 14 percent think this will happen sooner; more like later this year, in 2021.

The results of a McKinsey survey showed similar “glimmers of hope”. For example, although May 2020 saw 80 percent of respondents declare their revenues had fallen because of the COVID-19 crisis, only 65 percent said the same by November 2020.

Unfortunately, though, the stats leave over 840,000 small business owners unsure if their business will ever return to pre-pandemic levels of trade.

What Does the Future Look Like?

As is clear, the expected economic impact of the coronavirus on small businesses wasn’t as detrimental as predicted. However, it still took a huge toll on the UK economy, and it’s still uncertain as to whether this impact will stop any time soon.

Even with things opening back up again, who’s to say we won’t end up spiralling into another lockdown, which will have an even greater impact on it all. It’s certainly one for the history books.