The Financial Times reported that Fast-growing small and medium-sized enterprises in the UK face a cash shortage of up to £15bn this year after investor funding fell away during the coronavirus pandemic, with businesses outside of London notably struggling for financial support, according to new research.
A report about growth capital and focused on SMEs whose sales or number of employees are increasing at more than 5 per cent a year found that the funding shortfall for these companies is projected to double this year, from about £7.5bn in 2019, because of the Covid-19 crisis.
The research by the ScaleUp Institute, a think-tank, Innovate Finance, which represents the interests of the non-bank lending sector, and Deloitte, the accounting firm, comes as the government starts work on how to address the vast equity needs of companies that have accumulated large debts during the pandemic.
The Treasury has underwritten £50bn of bank loans to businesses, some of which are unlikely to be repaid.
The funding shortfall facing fast-growing SMEs stems from how investors are seeking to focus their cash on shoring up companies they have already committed equity to, according to the report.
Researchers said equity funding for the fast-growing SMEs had dropped 40 per cent in the second quarter compared with the same period a year earlier. And while overall fundraising on London’s Aim, which focuses on smaller companies, more than doubled in the second quarter, the amount secured for growth appeared to be down 45 per cent.
The report predicted that the amount of funding secured by fast-growing SMEs from these two sources would drop by at least £5bn in 2020 compared with 2019. The amount of early-stage venture capital committed would fall by £2.5bn. Adding that to a recurring annual shortfall in funding of about £7.5bn for these SMEs would result in a £15bn deficit this year.
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Article sourced from the Financial Times