Latest data shows one in five workers in micro businesses are furloughed

Micro businesses could face additional hurdles in recovering from the pandemic compared to larger firms due to a greater reliance on the furlough scheme and a lack of confidence in seeking financial support.

9 December 2020
  • New HMRC data reveals that almost one fifth of workers in micro businesses were on furlough at the end of September - compared to just 3.8% in large businesses.

  • Despite the Bounce Back Loan Scheme, confidence of micro businesses to successfully raise finance stands at 41% - dropping a third from this time last year.

  • We’re committed to restoring confidence in lending amongst micro businesses to support their recovery from the pandemic and protect jobs.

Micro business are more reliant on the furlough scheme than larger firms

HMRC data shows that micro businesses are significantly more reliant on the furlough scheme than larger firms. As of 30th September, 19.9% of eligible workers in micro businesses (1-9 employees) were on furlough, compared to 8.3% for medium enterprises (50-249 employees) and just 3.8% of large firms (250+ employees).

In addition, micro businesses have struggled to bounce back from the height of furlough scheme earlier this year. The most recent HMRC figures show that large businesses have recovered further with the number of eligible furloughed employees 80.7% lower than the peak in May of 3,448,500 workers. In comparison, 788,200 eligible employees in micro businesses were furloughed at the end of September, only 61% lower than the April peak of 2,024,900 staff.

Micro business confidence in raising finance has plummeted

Analysis of the most recent SME Finance Monitor data for Q3 2020 shows confidence in loan applications for micro businesses has dropped a third of the measure it was this time last year, with only 41% anticipating success. The confidence measure for the 3 months to August 2020 hit a historic 7 year low of 34% and was almost halved since Q3 2019 when 64% believed their application would be accepted.

Charmaine Silver owns a cleaning business in Nottingham – Crystal Shine Cleaning Services Nottingham Ltd: “I have eight people in my business, including myself,” says Charmaine. “. I put four of them on furlough at the start of the first lockdown, and then brought everyone back in June. We’d lost a lot of our clients and were in the process of trying to build the business back up, but then the second lockdown hit. A lot of our clients went into hiding and I had to put my staff back on furlough. The business is facing difficulty in paying bills and overhead costs, but I’m determined to fight on and build it back up.”

Charmaine Silver, owner of Crystal Shine Cleaning Services Nottingham Ltd Charmaine Silver, owner of Crystal Shine Cleaning Services Nottingham Ltd

The furlough scheme acts as a useful proxy for the health of the micro business community and the latest figures make the low measure of confidence in finance applications all the more worrying as firms could be discouraged from seeking the finance they need to support their post-pandemic growth. The need for more support is further highlighted in micro businesses having the strongest overall appetite for taking on finance out of all SME sizes in 2020 (SME Finance Monitor data).

"The gap between the demand for finance from micro businesses and their expectation of success for raising it is alarming."

iwoca was founded to support micro businesses which are underserved by high street banks and larger lenders, and is committed to helping these smaller firms recover from the pandemic. We aim to lend at least £200 million through the Coronavirus Business Interruption Loan Scheme (CBILS), with 83% of our loan approvals going to brand new customers over the past month. In further support of SMEs recovering from the pandemic, we’ve also pledged to lend £220 million to small businesses in the North of England by 2023.

“The gap between the demand for finance from micro businesses and their expectation of success for raising it is alarming,” says our CEO and co-founder, Christoph Rieche. “Many businesses have not been able to access funding via the Bounce Back Loan Scheme and need urgent support. We, alongside many other lenders, are committed to work with the big banks to find solutions to bring much needed finance to them.”

Data & analysis used:

The most recent data from HMRC on the Coronavirus Job Retention Scheme published on 25 November 2020 looks at the time period up until 30 September 2020:

  • For businesses with 1-9 employees, 788,200 workers were furloughed out of 3,958,300 who are eligible for the furlough scheme (19.9%)
  • For businesses with 10-49 employees, 591,400 workers were furloughed out of 4,407,900 who are eligible for the furlough scheme (13.4%)
  • For businesses with 50-249 employees, 382,200 workers were furloughed out of 4,584,500 who are eligible for the furlough scheme (8.3%)
  • For businesses with over 250 employees, 665,400 workers were furloughed out of 17,402,300 who are eligible for the furlough scheme (3.8%)

Micro businesses are also less likely to have recovered from peak demand of the furlough scheme, suggesting that larger firms have found it relatively easier to return to near-normality:

  • For businesses with 1-9 employees, 788,200 workers were furloughed at the end of September, 61.1%lower than the peak of 2,024,900 in April
  • For businesses with 10-49 employees, 591,400 workers were furloughed at the end of September, 70.2% lower than the peak of 1,981,700 in April
  • For businesses with 50-249 employees, 382,000 workers were furloughed at the end of September, 74.2% lower than the peak of 1,479,600 in May
  • For businesses with over 250 employees, 665,400 workers were furloughed at the end of September, 80.7% lower than the peak of 3,448,500 in May

BVA BDRC SME Finance Monitor, September 2020:

  • 41% of micro businesses (0-9 employees) felt their application for finance would be successful for the 3 months to September, Q3 (p. 36).
  • 34% of micro businesses (0-9 employees) felt their application for finance would be successful for the 3 months to August 2020 (p. 36, SME Finance Monitor, August 2020). This is the lowest measure for micro businesses since Q2 in 2013 at 29% (p. 223)
  • Future appetite for finance increased across all size bands in 2020 (p. 33)

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Charlotte is a PR & Communications specialist at iwoca.

Article updated on: 9 December 2020

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