The looming threat of a no-deal Brexit, coupled with a second national lockdown, promises a difficult winter for SMEs on top of what has already been a challenging year. Emma Lovell, Chief Executive of the LSB, explores why current uncertainty in the public sector is driving the private sector to step up and meet the needs of its SME business customers.

SMEs are the lifeblood of the UK economy, making up 99.9% of the 5.4million businesses nationwide. Last year they generated over £2.3 trillion in turnover. 16.8 million of the population work for one.

But many are struggling as the pandemic has continued to deplete sales and drain cash reserves for businesses across the UK. And with Brexit on the horizon, how can banks continue to support these businesses, that together form such a vital part of our financial ecosystem?

Despite hopes of striking a free trade deal before the year is out, many SMEs are currently planning for a worst case, no-deal Brexit scenario as best they can. It is true that the Government is exploring support packages to help small businesses through a no-deal, such as Brexit Transition Vouchers. But with talks as to the extent of the UK’s relationship with the EU from 1st January 2021 ongoing, there remains a huge amount of uncertainty among the SME community as to what trade, employment and regulation might look like for them long-term.

What’s more, recent research shows that, as a result of the Covid-19 pandemic, in the three months leading up to September, half a million businesses in the UK were in significant distress; an increase of 6% to the previous three months, and incidentally the fastest rate of increase in three years.

Adding to this already uncertain climate for SMEs is a second national lockdown, coupled with the long-term impact of the pandemic once public sector support inevitably winds down.

With a relaxation of the rules around insolvency, the introduction and extension of the furlough scheme and other government-backed initiatives, many businesses have been supported over the last 6 months. In September, HM Treasury revealed that 1.33 million UK businesses have benefited from government-backed lending initiatives so far, whilst 43% of SME owners have described government support for the sector as either good or excellent. And only very recently, we saw an extension of the application deadline for the Bounce Back Loan (BBLS) and Coronavirus Business Interruption Loan Schemes (CBILS) until 31 January 2021, coupled with new rules allowing customers with existing loans to apply for a top-up if they didn’t take the maximum amount available to them first time round.

However, many of these support packages must come to an end at some point, and with newly refreshed optimism for a vaccine by the spring at the earliest, concerns around access to finance and support for many SMEs will undoubtedly remain in the aftershock.

The inevitable end of government backed initiatives is not the only thing keeping SMEs up at night. With recent reports estimating fraudulent applications for the BBLS at 60%, many business customers that could have fallen victim to fraud won’t know until they start receiving repayment notices through the mail from their banks next year. Further, some banks are exclusively lending under these government schemes, with the unintended consequence of leaving some SMEs unable to get access to the lending they need.

Now is the time for banks and financial services providers to continue to step up and rally around the SME community so that they will be supported when they come to need it most.

Understanding the challenges SMEs are currently facing to support their business needs is critical at this time. And it starts with lenders changing the nature of the conversation they have with their SME customers; it’s as much about being a financial protector as it is a financial provider. In the current climate, it is vital that lenders not only provide access to finance for SME customers but the information, tools and guidance they need to protect themselves againts the turbulent times ahead.

As a starter for ten, lenders should be asking themselves: What customer protection processes have we implemented? How do we adapt to meet the needs of our business customers in financial difficulty or vulnerable circumstances? What governance and oversight controls do we have in place to ensure that these measures are effective and actually working?

Working together with regulators and government policy makers will also be key for lenders to continue to support their SME customers through this uncertain period. This involves actively engaging with industry-wide initiatives so that SMEs can access the finance they need to grow and thrive, and, for example, continuing to integrate an infrastructure to enable more wide-spread adoption of Open Banking across the industry, initiating faster payments and aiding the survival of small businesses as a result.

As SMEs experience mounting financial pressures, it is crucial that banks and lenders provide the support they need. SMEs have always been, and continue to be, an essential part of the fabric of the UK. Now, with public sector support likely to wind down in the new year, banks and financial service providers have an opportunity to ensure that, whatever the weather, helping these businesses remains at the top of the agenda.