Middle market enterprises (MMEs – companies with turnover between £10m-£100m) are often highlighted as the heart of growth in the UK economy. These firms, some of them quite long standing, account for over 30% of business annual turnover in the UK , amounting to some 13 trillion pounds. Small and medium enterprises  (SMEs) are often hailed as the segment that will drive the economy. In the European Union, SMEs – defined as firms with less than 250 employees – account for 99.8 percent of all employer firms, 65  percent of private sector employment and 54 percent of private sector gross output

MMEs in the UK are currently operating in a difficult environment. There has been low-growth for years, the uncertainty caused by Brexit and political dynamics remain a real concern, and global factors such as climate change, shifting trade flows and pandemics are clouding the outlook.

2020 has been a singularly difficult year for SMEs and MMEs. The IMF² predicted that many SMEs and MMEs were due to fail following this difficult year that was marked by a global health crisis which triggered an economic crisis. The IMF presents the specificity of the challenges faced by SMEs and MMEs in clear terms:

“Many businesses, especially the small firms that lack collateral,
may not be able to secure fresh funding to tide themselves over
until business conditions stabilise.”

Despite their importance, SMEs and MMEs sorely lack access to liquidity and funding. Most of them rely on debt in the form of bank loans to ensure liquidity, as opposed to other means of funding. In that context, a liquidity shortage can easily become a solvency shortage, and this is exactly what the COVID19 crisis created.

Cash-flow is the lifeline of SMEs and MMEs and when it becomes challenged, as it in situations of lockdown, halt in production, collapse in consumption and confidence and stock exchanges responding negatively to heightened uncertainties, the dearth of resources available to SMEs and MMEs creates a perfect storm for their failure.

Because of their size, SMEs and MMEs have a shorter period/ runway to survive shocks to demand, supply and their global functioning. The lack of available funding shortening this runway even more.  As the Fed³ puts it:

“Research in the United States suggests that 50% of small businesses
are operating with fewer than 15 days in buffer cash
and that even healthy SMEs have less that two month cash reserves.”

That said in the US and State government sponsored emergency funds were made available across a wide number of financial institutions with very little red tape. In stark contrast, in the UK access to government sponsored funds were funnelled through a small number of larger financial institutions, laden with less than nimble legacy-burdened practices and dragged down by cumbersome slow processes, that further exacerbated the already difficult situation for British businesses. Couple this with unclear Government directives and this has resulted in many of the allocated funds remaining unclaimed, not taken up by the businesses they were set up to help. Certainly, a missed opportunity.

Because of the uniqueness of the COVID-19 crisis, not all sectors have been impacted to the same extent. Transport manufacturing, construction, wholesale and retail trade, air transport, accommodation and food services, real estate, professional services, and other personal services (e.g. hairdressing) have been the worst hit. And unfortunately, these are the sectors where SMEs and MMEs are the most active⁴.

Finally, SMEs and MMEs have not always been the best at digitising their operations. While corporates managed to shift to teleworking and digital operations rather successfully albeit in a rush, SMEs and MMEs were not able to adapt as propitiously. A McKinsey survey of European firms highlighted that only 56% of all companies with 50 or fewer employees provided remote access to email, applications, and documents for their employees, compared with 93% of all companies with more than 250 employees⁵.

Is this bleak picture all there is to know about SMEs and MMEs in 2020? Certainly not, the crisis is coming to an end, and around the world governments have actively helped their SMEs and MMEs and these firms demonstrated an incredible degree of resilience to the pandemic shock. While Covid-19 has surely provided much pain and heartache for the mid-sized business community, it has also forced a level of ingenuity and resilience not seen in decades.

Now is the time for the financial sector to offer smarter services for SMEs and MMEs to help them remain liquid and provide access to cash-flow. During this crisis, the world very quickly came to understand the importance of MMEs for the growth and well-being of the economy, and the health of the broader community at large. The interconnectivity of our economy, and a reliance on medium business in our society has been laid bare by this pandemic, and it is our betting that this new realization and appreciation will bring opportunities to ensure that governments and financial systems will sure up their economies, and at the heart of this survival lies is the resilience of the MME.

(1) IMF, COVID-19 and SME Failures, Sept 25 2020

(2) IMF, COVID-19 and SME Failures, Sept 25 2020

(3) Federal Reserve Bank of New York (2020), Can small firms weather the economic effects of COVID 19?, Federal Resvere Bank of New York

(4) Recent OECD data show that whereas in the business economy at large, SMEs account for over 50% of employment across OECD countries, in these sectors the share of SMEs in employment is 75% on average across OECD countries, and nearly 90% in Greece and Italy.

(5) McKinsey (2020), Safeguarding Europe’s livelihoods | McKinsey