We only use cookies for website functionality and security.


Find all the latest news, stories, insights and tips from Paragon Bank.

What does post-COVID-19 recovery look like for UK businesses?


Our head of SME Lending, John Phillipou, discusses the findings of our recent survey and some of the six main trends driving SME business recovery. 

Over the course of the last 18 months and throughout three national lockdowns, UK SMEs have faced unprecedented challenges. They have proved flexible and resilient whilst faced with the biggest crisis of a generation.  

We saw multiple examples of this extraordinary ability to adapt amongst our customer base, with SME owners learning new skills, innovating, expanding into new sales channels, taking their businesses online or completely transforming their product offering.  

As we emerge from the pandemic, we wanted to establish how UK SMEs' outlook for the future was evolving and what the key recovery drivers were. To get the full picture, we conducted a large-scale survey of 1,000 SMEs, covering a variety of industries. Our survey outlined six core trends driving recovery.  

1. Most UK SMEs are bouncing back at a rapid pace 

It's promising to see that more than half of UK SMEs are already seeing strong signs of recovery as we emerge from the pandemic. More than one in six SMES (22%) are seeing their turnover now exceed pre-Covid levels, while another 31% have now matched pre-Covid figures.  

Amongst the 48% still working to get back to pre-pandemic levels, 32% felt like they were likely to achieve this in the near future. Only 16% still felt their path to recovery remained uncertain. 

Smaller businesses bounced back the quickest, with 64% matching or exceeding turnover levels.  

This positive pace of recovery was also heavily reflected in positive outlook, with 92% of SME owners feeling positive about their future. One in four (24%) predicted their business would be stronger than ever post-pandemic, compared to only 14% in our September 2020 survey.  

2. Growth and stability are top priorities for UK SMEs  

We asked SMEs to outline their top priorities as they plan for their recovery. Achieving growth and creating financial stability ranked as the most important focuses for UK SMEs - this was a priority for 61% and 60% of SMEs respectively. The third biggest priority was implementing a business strategy - this was a priority for 55% of SMEs - while exploring new routes to market and new customer segments was a focus for 52%.  

Expanding business support networks was the lowest ranking priority, with only 38% of businesses prioritising this.  

3. SMEs are boosting innovation budgets to drive their recovery  

Innovation is a vital driver of post-Covid recovery at both business and industry level. Eight in ten SME owners (79%) think that industry innovation will be crucial to supporting SMEs in their recovery, while 77% deem innovation to be a key part of their own business recovery. This is reflected in budget allocation - the average budget assigned to innovation is up 19% post-pandemic, rising from £415,000 to £449,000.  

We identified four key 'innovation' pillars that SMEs are focusing upon to drive their recovery, with SMEs planning a fairly even distribution of budget across all four.  

Process innovation was a leading priority for 39% of SMEs - including investment in IT infrastructure and IT security. In close second was proposition innovation, a priority for 36% of SMEs. This focused on introducing new product lines or new services or expanding their existing offering.  

Organisational innovation was also a priority for 35% of SMEs - spanning investment into embedding flexible working models, learning and development, employee wellbeing and implementing more environmentally sustainable processes.  

Finally, marketing innovation was a priority for one in three SMES (34%) - this included marketing innovation, new communication channels, exploring new customer segments or creating or updating a website.  

4. Cashflow was the biggest concern for SMEs during the pandemic - and remains a focus during recovery  

Cashflow issues impacted the majority of SMEs, with 58% reporting that they were affected by this.  

As expected, cashflow issues were most prevalent amongst sectors that had to shut down during the pandemic, including accommodation, food services and recreation, construction and retail industries - with 66% of SMEs reporting cashflow issues across those three industries. 

Cashflow issues were particularly a problem for newer businesses that have been in operation for less than five years, impacting 76% of those, or businesses with large turnovers of £25 million or more (73%). It also disproportionately impacted businesses in the North East, with 71% reporting this.  

A broad range of factors contributed, with loss of profit the main contributor in 53% of cases, followed by late payments from clients (a factor in 34% of cases) and high overhead expenses (23%).  

5. Government support has been vital in powering SMEs forward 

There is no doubt that Government support has played an invaluable part in supporting SMEs during the pandemic, through a variety of initiatives including the furlough scheme, the Bounce Back Loan Scheme (BBLS) and the Coronavirus Business Interruption Loan Scheme (CBILS) or the more recent Recovery Loan Scheme (RLS). More than eight in ten (82%) of SMEs utilised at least one Government scheme.  

On the whole, two thirds of SMEs (67%) were pleased with the level of support provided by the Government. Levels of satisfaction were particularly high amongst smaller SMEs. 

Amongst the Government schemes available, the furlough scheme was by far the most commonly utilised by SMEs, with 44% using this. This was followed by the Coronavirus Job Retention Scheme and Business Rate Scheme (both used by 27% of SMEs). Nearly one in five (18%) opted to use no support at all.  

Within seven weeks of RLS launching, 12% of SMEs said they'd already used the scheme while 23% said they were likely to in future. The most common reason for applying for RLS funding was to boost cashflow.  

6. The agricultural sector is flying the flag for post-Covid recovery  

The agricultural industry is bouncing back from Covid quicker than any other sector surveyed. Not only do agricultural SMEs hold the most optimism (94% vs an average of 92%) but they are also the most likely industry to believe they will be stronger post-pandemic. They were also less likely to experience cashflow issues than other industries. We also noted a larger commitment to innovation within the industry, with 90% of SMEs in agriculture increasing their innovation budget post-pandemic.  

 A number of drivers have contributed to this faster pace of recovery, including a large surge in demand for food produce during the pandemic and an increasing consumer focus on the 'farm to fork' journey.  

However, the industry was not without challenges - including labour shortages, transport and logistic disruptions, equipment shortages, manufacturing delays and shifts in consumer demand.  

This was reflected in the fact the sector had lesser cash reserves than the cross-industry average, holding £60,000 less on average. The industry was also the most likely to call for additional Government support, particularly non-financial support in dealing with issues like Brexit.   

To find out more about the key trends impacting SMEs as they emerge from the COVID-19 pandemic, download our full report, Looking beyond the pandemic, what does recovery look like for UK SMEs?

Paragon Bank PLC is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Registered in England number 05390593. Registered office 51 Homer Road, Solihull, West Midlands B91 3QJ. Paragon Bank PLC is registered on the Financial Services Register under the firm reference number 604551