One in three smaller firms (SMEs) and 43% of medium sized enterprises do not expect to be in business beyond a year.
The research by law firm Fladgate said its survey of 500 SMEs paints a “concerning outlook” for the backbone of the UK economy.
Fladgate’s Restart Capital report also reveals that one in five SME’s said their business is already in “distress.”
Meanwhile, 31% of respondents said they are still in a “shock and denial phase” or “anger and depression,” which may be hampering their ability to decide how best to move forward.
The survey highlights says that 72% of SME leaders are trying to raise money to ride out the storm, while 46% said they did not succeeded as hoped.
It also found that private investors are willing to deploy capital to support SMEs, with nine in 10 investors or 90% recognising SMEs are the key to the UK economy.
In terms of investment, 85% of investors want to play an active role in their investments, they said they see the highest potential in supporting troubled businesses, with over 50% admitting they had experience of working with distressed firms.
Investors are most interested in allocating capital to sectors hardest hit by COVID-19, the report said.
Construction, which SME leadership teams revealed had experienced a 39% hit to turnover is seen as the most attractive sector for investment, with 29% of investors keen to invest in this market.
As government support for businesses in the wake of COVID-19 is unwound, the majority of SMEs and investors seek more government support to help the flow of private investment into troubled businesses.
Fladgate is urging the government to consider implementing a series of policy measures seen by survey respondents to be beneficial. 26% of SMEs support tax relief for investors to encourage the deployment of capital.
Of the respondents, 37% would like to see government guarantees for loans or other risk sharing for private investors’ — similar but broader than the Coronavirus Business Interruption Loan Scheme (CBILS).
Jeremy Whiteson, partner at Fladgate, said: “This should be seen as a loud Mayday call by UK SMEs. As the bedrock of the UK’s economy, any recovery plan must address the needs of these firms.
“Government support cannot and will not continue forever. Private investment, therefore, presents a long-term and sustainable solution for troubled SMEs.”
Tax incentives for investments into distressed business (similar to the popular enterprise incentive scheme but adapted to fit typical distressed investors)
Delay the introduction of preferential status for HMRC, currently scheduled to be introduced in December 2020
Government guarantees for loans or other risk sharing for private investors (similar to, but broader than, the CBILS scheme)
Grants for early advice on strategic options for SMEs
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