Trade body warns 250,000 small businesses at risk of closure

The FSB’s Small Business Index revealed that one in five firms reduced headcount in the three months to December, and one in seven expect to do so this quarter.

The index also revealed that the proportion of small business forecasting a reduction in profitability is at an all-time high, rising from 38% to 58% over the past year.

The FSB’s release came soon after a separate study found the role debt collection agencies (DCAs) could play in helping SMEs get out of debt. The Credit Services Association (CSA) published a report which calculated that the use of professional DCAs could make an extra £6bn difference in additional returns.

The FSB’s warning also comes after the Prudential Regulation Authority (PRA) wrote to UK bank bosses in December, telling them to review their exposures to losses that could come from businesses hardest hit by the pandemic. The letter detailed how the central bank is expecting an increase in customers facing financial difficulty, as well as rises in arrears and defaults.

FSB national chairman, Mike Cherry, said: “The development of business support measures has not kept pace with intensifying restrictions. As a result, we risk losing hundreds of thousands of great, ultimately viable small businesses this year at huge cost to local communities and individual livelihoods.”

Ian Warwick, managing partner at investment specialist Deepbridge Capital, said: “The biggest problem for growing early-stage companies may be access to funding, but we expect UK investors and financial advisers to continue to utilise the Enterprise Investment Scheme (EIS) to support such great companies whilst allowing investors to benefit from the generous potential tax reliefs on offer.

“EIS has never been a more important government tool for supporting the UK economy and it has never been more vital for investors to understand the potential benefits.”