Private equity can play a key role in helping UK SMEs post pandemic

Bill Nixon speaks to Business Leader about the unique position of private equity firms to support the recovery of the UK SME sector and build a more sustainable economy as we look beyond Covid-19.

UK SMEs have endured their toughest year for generations. Almost a million are at high risk of failure according to a recent ONS Business Impacts survey. For those that have come through the fire, there is still an urgent need for support as businesses begin to re-open, often with reduced resources or a weakened balance sheet. This support is required across the entire SME economy, particularly as Government financial support is withdrawn over the next few months.

In reviewing the funding sources that can help to address these needs, private equity firms are particularly well placed – they have the capital and in-depth expertise to ensure that funding is available to those ambitious growth companies with the best chance of recovery and success and can also provide the vital hands-on assistance to help management teams looking to restore growth to their business. Private equity investment can also help shape a more sustainable economy, fostering not only innovation and job creation, but also strong ESG principles, that will help the UK emerge from the crisis with businesses that are well funded, more competitive, and also greener.

Government intervention measures have been crucial

The Government has implemented much-needed measures to help businesses. More than £19bn in CBILS loans and more than £43bn in Bounce Back loans had been approved by the end of 2020, although the window for further applications will end on 31st March and the Future Fund closed in January. A successor to CBILS has been announced: a Recovery Loan Scheme (RLS) which will run until at least the end of the year and guarantees 80% of the finance lenders provide.

Debt alone is not the answer

With SMEs taking on an estimated £80bn of debt during the pandemic from both Government-backed loan schemes and VAT deferrals, additional debt is unlikely to be the sole answer as companies will need funding for further growth to service and eventually pay off their increased debt levels. Securing fresh investment will therefore be at the cornerstone of the recovery.

Listed companies have the option of raising additional capital through share issues which they have been actively doing – close to £30bn was raised on public markets by companies last year. However, for private businesses, of the range of available funding options open to them such as family and friends, family offices or investor syndicates, experienced private equity firms offer distinct advantages.

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