By Tim Vine, Head of Credit Intelligence at commercial data and analytics firm, Dun & Bradstreet

The only thing that’s certain for the UK economy in a post-COVID-19 environment is that recovery will take time and is not going to happen overnight. This is probably why most businesses are only cautiously optimistic about the Prime Minister’s relaxation of lockdown measures.

But there is hope.

According to the most recent ONS figures, of all responding businesses, 85% had been trading for more than the last two weeks, while 4% had started trading again within the last two weeks after having temporarily closed or paused trading.

The enormous queues outside high street shops as non-essential stores reopened for the first time since lockdown was a prime example of the determination of consumers and businesses to bounce back. And it’s not just the high street chains looking to prove themselves: the next few months will be key for small-to-medium-sized enterprises (SMEs) looking to adapt to a post-COVID world.

The recovery of the UK economy overall will hinge on the survival of SMEs who make up more than 99% private sector businesses – many of which have been the most adversely hit by the pandemic.

The lockdown conundrum

While there is likely to be an uptick in business activity as the government scales back its lockdown measures, some level of social distancing will almost certainly remain in place for the foreseeable future – which has big implications for businesses.  SMEs need to make changes now if they are to weather the lockdown storm.

After all, lockdown is a double-edged sword in terms of its impact on the UK economy. On the one hand, social distancing measures are restricting movement, which is reducing the supply of goods and services. And lockdown is also reducing demand because some workers have been laid off or furloughed and have less disposable income as a result.

The challenge, then, is for SMEs to assess the impact of lockdown on their business and find new ways of working and – most importantly – finding the funding to support their survival and ultimately their future growth.

Stemming the flow of the cash crisis

Before the outbreak of COVID-19, SMEs we surveyed were owed an average of almost £75,000 at any one time in the last twelve months. Not only that, but just over a third (34%) said timelines of payments from customers had an impact on their future financial success.

Dun & Bradstreet’s latest data also found that after several quarters of improvements, payment performance in April 2020 deteriorated across the board for all UK industries. As we enter what’s likely to be a severe recession in the wake of the pandemic, we can also expect to see a significant increase in the number of business failures in the next few quarters as the full impact of the past few months takes its toll. We also expect B2B payments performance to continue on the same trajectory and deteriorate further.

With the 47% of all businesses that continued trading during lockdown reporting they only had cash reserves to last less than six months, access to finance is going to be critical for their recovery and to remain solvent in the future.

Lending isn’t a dirty word

As part of its efforts to support UK SMEs, the government launched the Coronavirus Business Interruption Loan Scheme (CBILS) and other schemes to provide financial support to businesses that have been disrupted by COVID-19.

Under normal circumstances, traditional lenders such as banks are usually risk averse when it comes to lending. Where there’s economic uncertainty, it is likely that it would be even more difficult for companies deemed “risky” to receive a loan or line of credit. However, with a government-backed guarantee, the aim is to provide more opportunity for SMEs to access the funding that they desperately need to keep afloat following the outbreak.

It’s also important to remember that it’s not just banks that can provide funding to support SMEs. There are a range of alternative providers available, with challenger banks and other specialised lenders also registered. For businesses hoping to re-emerge from lockdown unscathed, now is the time to find a provider that works best for the business and prove itself as a credible investment.

Resilience and reinvention

Dun & Bradstreet has upgraded its rating outlook for the UK from ‘deteriorating rapidly’ to ‘deteriorating’ as the government starts to lift lockdown measures and the restarting of the economy should provide SMEs with some much needed respite.

While loans will be a lifeline for many businesses, being accepted is not guaranteed; of the 1.29 million loan applications submitted, just over 1 million have been approved. Businesses need a clear proposal for why they need a loan, how they plan to use it and crucially, how they plan to repay it. Lenders will look at credit history and information such as credit ratings, payment performance and general financial health to make decisions. Once lockdown ends, it will be a case of survival of the fittest amongst SMEs. But those with the most robust plans for accessing and securing finance are likely to be best-placed to survive.