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According to the Federation of Small Businesses (FSB), of the 14,000 firms that were surveyed for its latest Small Business Index study, almost 5% believed that they expect to be forced to fold in 2021. With the department for Business, Energy and Industrial Strategy estimating around 16.8 million people to work in small-medium enterprises (SMEs) across the UK, the closure of around 5% of them would have a catastrophic impact on both business level and household level finances.

As discussed at our Covid-19 economic recovery roundtable event back in October 2020, SMEs will be key to building back a more inclusive economy in the UK (see more in this blog). At Registry Trust, we are therefore keen to understand how our data could be used to predict potential risks to SMEs to inform policy and the creation of support mechanisms for them. In fact, this is something that we have already been in touch with the Small Business Commissioner about.

From our data we can see the number of non-corporate business (SME) monetary judgments declined rapidly from 2019 to 2020, from 33,402 to 22,305. This may be a result of several factors including a declining number of SMEs still in business due to the pandemic, or fewer SMEs having judgments raised against them due to Covid-19 financial support put in place. Unfortunately, it does not appear to be as a result of the improved financial resilience of SMEs as the total value of new SME judgments increased £33 million, from £105 million in 2019 to £138 million in 2020. This is comprised of an increased median value from £1,262 to £1,301, and an increased average value from £3,155 to £6,198. This shows that for the average SME judgment, the value of that debt has grown from the previous year.

RT non corporate businesses data graph.png

The study by the FSB also found that 49% (almost half) of SMEs who engage with export expect international sales to be reduced this quarter (Q1 of 2021). Furthermore, the percentage of SMEs predicting a decrease in profitability for Q1 of 2021, increased from 38% to 58% over 2020; the highest level so far. This likely to push many small firms in the UK into further arrears with larger values attached. This pressure placed on SME firms not only reduces the financial stability of the employer, but of employees and their household finances also. According to the Federation of Small Businesses, almost one quarter of SMEs decreased their workforce headcount in the last quarter of 2020(23% compared to 13% the in 2019).

The next graph shows how the pandemic impacted SME judgments in 2020 on a quarterly basis. With the full effects of the pandemic hitting the UK in March 2020 during the first national lockdown, we can assume Covid-19 had very little impact on Q1.

RT non corporate businesses data graph 2.png

Q2 saw the number of records plummet, but this was mainly due to the closure of the courts to maintain social distancing. The number of records have therefore not yet reached pre-pandemic levels despite continuing to increase. As discussed above, this could be due to the reduced number of SMEs who have managed to survive 2020.

The peak number of SME judgments was in Q3 of 2020, which could either be a predictive indicator, or a lagging indicator of financial vulnerability for SMEs. Lagging in the sense that the business has already reached a state of indebtedness, thus must have faced financial difficulty in the past. Yet, predictive in the sense that the judgment will produce further hindrance to their finances, such as when applying for credit. A judgment is the end of the process but could influence the occurrence of another.

The average and median amount of judgments also peaked in Q3 of 2020 (at £11,282 and £1,412.50 respectively), when generally, the value attached to the SME judgments was heightened.

We are keen to work with key stakeholders like the Federation of Small Businesses and others that support SMEs to provide a fuller picture of how the pandemic is affecting them and we are hoping to run a roundtable event on this priority issue in 2021. Please get in touch on if you would be interested in attending/finding out more about potential uses of our data.

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