Published by Jessica Weisman-Pitts
Posted on September 27, 2021
6 min readLast updated: February 2, 2026
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As government support dwindles, UK SMBs must explore alternative funding options. Retail financing and diverse lending sources are key.
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 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, 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 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 began.
The good news for SMBs is that there are other sources of financial support 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, 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 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 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 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 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 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 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. Our research found that retail financing – a form of loan set up to pay back in instalments to those with good credit 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 going, variety is key. Every business is different in terms of needs, 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 of stricter lending policies.
Small businesses therefore need 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 – or just to keep paying the wage bill.
Like bank loans, these require meeting strict criteria and providing a lot of paperwork. What’s more, these business financing 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. This is a relatively new option that enables businesses to borrow money against unpaid invoices. The downside is that, like any loan, lenders will claim a percentage of this money on top of other expenses 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 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. A well-established online lender for businesses can make your life easier and provide a loan tailored to your business’ needs.
Let’s not pretend that the winding up of government support schemes isn’t a blow for the nation’s 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 of every size. There’s every chance that you too can find the funding you need to make it through to the long-awaited recovery.
The article discusses funding options for small businesses as government support decreases.
Alternative sources include retail financing, credit cards, online loans, and personal networks.
Many SMBs have relied on loans to cover operational costs, with a significant increase in private lending.
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