Record levels of smaller businesses sought external financial support in 2020, according to a new report published by the British Business Bank.

The research showed that 45% of SMEs applied for external financial support in 2020, compared to 13% in 2019.

At the same time, gross bank lending – which excludes overdrafts – to smaller businesses rose to £104bn in 2020, a total that was 82% higher than in 2019 and driven by the use of government loan schemes in response to the coronavirus crisis.

The British Business Bank stated that the utilisation of bank overdrafts, credit cards and asset finance all fell, while the only increase in the usage of traditional repayable external finance was seen in loans, which was up from around 10% in previous years to 25% in 2020.

This trend was reflected in lending data for the Bounce Back Loan Scheme and the Coronavirus Business Interruption Loan Scheme, which showed around 1.5m facilities approved by the end of 2020. The use of government grant funding by businesses also increased significantly, from 2% in 2019, to 31% in 2020.

Looking ahead, the report also suggested there could be significant further demand for funding in 2021, as businesses continue to recover from the effects of the pandemic. The British Business Bank reported positive indicators that banks currently look to have sufficient capital and could support further lending.

Due to the dominance of government emergency schemes, however, the report highlighted that non-bank and alternative finance lenders have been less active in 2020 and seen lower demand for their products.

The previous five years to 2020 had seen significant growth in alternative finance flows to smaller businesses, and these lenders are expected to see activity resume as demand begins to return.

British Business Bank CEO, Catherine Lewis La Torre, commented: “This has been an especially challenging period for smaller businesses with external finance playing a vital role in business survival in the face of the COVID-19 pandemic.

“The British Business Bank has played an important role during the crisis and we will continue to support smaller businesses as they steer a path towards a sustainable recovery.”

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