In February 2020 DueDil joined together with BBC StoryWorks and Innovate Finance to produce a film as part of the Innovation in Finance series. Our contribution focused on how we provide Funding Options, an alternative lending marketplace, with insights on millions of SMEs, allowing them to quickly and accurately help their customers find sources of funding.
The subject of the film was a small business based in Peckham in South London, The Gluten Free Bakery – founded and owned by Rana Righton. She had used Funding Options to help expand her rapidly-growing business, leasing the equipment she needed to meet demand from restaurants, cafes and supermarkets for her gluten-free baked goods.
In between recording and launching the film, the world changed beyond recognition. The Covid-19 lockdown is having a profound effect on all of us, but for an SME that depends on trade from the catering and hospitality sectors, the ramifications are obvious. In light of this we caught up with Rana (via Zoom chat of course) to see how the business had coped, what support she’d had from government and how she had pivoted her offering.
How the Gluten Free Bakery changed under lockdown
Although boarded up pubs and empty restaurants are the most obvious signs of the impact social distancing has had on the leisure and tourism industries, it’s easy to overlook the huge supply chains that keep these businesses running. For suppliers like The Gluten Free Bakery there was an immediate and devastating ripple effect.
“That first month of the crisis it was really difficult, because we didn’t know how much longer we’d be able to stay open or how long we could keep staff on. Already a few of the businesses we had been supplying have gone into administration, as a supplier we’re very low down the list of creditors, so it’s very unlikely we’ll ever be paid those invoices.” Rana told us.
The majority of Rana’s business had been B2B – providing retail outlets and restaurants with a supply of gluten-free bread, bagels, pizza bases and more. With many of these businesses now closed, either temporarily or permanently, the business had to shift to survive. The Gluten Free Bakery had previously sold a small volume of products via direct sales on the company website, but this soon became a lifeline.
“It completely turned our business on the head, literally overnight all of our customers closed. Operationally we had to look at how we go from delivering bigger orders to fewer customers to lots and lots of little orders all around the country.” said Rana. “Last month, 70% of our sales were from new customers on our website.” she added.
How support from the government helped and hindered
A variety of schemes and grants were announced by the UK government in the early days of the lockdown. As well as the furlough scheme designed to stifle job losses, two initiatives – Coronavirus Business Interruption Loan Scheme (CBILS) and the Bounce Back Loan Scheme (BBLS) were created to encourage lenders to distribute money to businesses in need. The loans in both schemes are backed either fully or partially by the government, meaning lenders are taking less risk.
The CBILS initiative, in particular, has been widely criticised for how slow the application process was and how long it took to actually distribute the funds. At a time when SMEs only have a matter of days to save their business, they just can’t afford to wait for a decision. Rana applied for both the CBILS and BBLS scheme and shared her experiences with us.
“(For CBILS) I called the bank at 9am on the first day and it took a very long time for anyone to get back to us, it took a couple of weeks to even start the process and surprisingly, they came back and said our business was doing too well!”
Because the business had been able to quickly transform its business model to B2C, it had actually hindered their ability to get a CBILS loan. Fortunately for Rana the BBLS scheme proved more successful.
“We were given a bounce-back loan. That was a great help, because all the other grants available we weren’t eligible for, even the business rates relief. It was a frustrating time, because it seemed like the government were offering all these great lifelines and grants and we weren’t eligible for any of them.” said Rana. “I think there are a lot of small businesses maybe slipping through the net, because it’s hard to create support that would cover every single situation.” she added.
Why financial inclusion is now more important than ever
In Rana’s case we can see how the ability to digitise the business through e-commerce as well as getting fast access to funding helped her weather the storm and keep the business afloat. However, for many businesses, waiting a month to get an answer on funding was just far too long. A year-on-year increase in the number of companies going into liquidation and administration illustrates the early impact of the lockdown.
Large companies may have the cash reserves or access to capital to see out pandemics, recessions and other unexpected crises, but for small businesses a few weeks is the difference between thriving and closing. Harming employment, innovation and the choice that comes with a vibrant SME economy.
The themes of the Innovation in Finance series – financial inclusion, digitalisation and levelling the playing field for SMEs have become more important than ever. For SMEs it’s no longer just a question of opportunity, but one of survival.