New research from Hitachi Capital Business Finance (HCBF) has found that UK businesses were twice as likely to be concerned about the impact of Covid-19 on their business, as they were about the impact of the Brexit transition period coming to an end on 31 December.

In the HCBF survey, 1,107 UK small business leaders across various industry sectors were asked what they thought their biggest barriers to growth in the next six months would be.

The research found that over half of respondents (51%) cited the direct impact of coronavirus on their business operations, while in comparison, just 25% were concerned about Brexit and its impact on their business.

Among businesses in the manufacturing sector, a third (33%) of those surveyed were scaling back, with close to twice the proportion concerned about Covid-19 (46%) as they were Brexit (23%) as their main barrier to growth.

Interestingly, the research also found that businesses most attuned to the consequences of Brexit in the coming months were those who largely operated online, with a third (34%) of businesses that did most of their trading online focussed on Brexit, compared with 19% of businesses that operated largely offline. In relation to this, the survey also found that 5% of respondents saw them not having a cutting-edge presence in the digital marketplace as a barrier to their business growth in the next six months.

HCBF explained that its research comes as the proportion of businesses either contracting or struggling to survive remains high at 27%, up from 15% pre-coronavirus. However, its survey found that one in ten (11%) small firms are looking to expand into new geographical markets, rising to 18% of businesses that were currently expanding.

Other factors that small business leaders reported as their biggest barriers to growth in the next six months in the survey included: general market uncertainty (46%), uncertainty as to the future of the business (24%), excessive bureaucracy and regulation (13%), cost of skilled labour (7%), an unwillingness within the business to take risks (6%) and having old/out-of-date equipment (5%).

The financial barriers to growth reported amongst those surveyed included volatile cash flow (16%), high fixed costs/overheads (8%), banks being restrictive on lending money (7%), high fees to pay e.g. to the bank (5%), a lack of understanding from lenders (4%) and the value of sterling/exchange rates (4%).

Joanna Morris, head of insight at HCBF, commented: “The Covid-19 pandemic changed every aspect of our lives in 2020, and the economic impact is yet to be fully understood. Such a shock to the system will take a long time to recover from – some sectors worse affected than others – while changes adopted during this unprecedented time could have permanent effects.

“Confidence in Q2 this year dropped to the lowest levels we have ever seen, and while the bounce back has been strong, confidence levels remain a long way below where they were pre-Covid.

“Before the pandemic, Brexit was front of mind for the majority of business owners. As we enter our second national lockdown closer to the deadline, we are no further along with plans to comply with the changes, minimise any negative impacts and capitalise on the positives. This loss of momentum is a concern.

“It is vital that all channels for business remain open and clear in our increasingly connected world. The pressure on the government and small business owners to make a success of Brexit in the coming months has intensified.”

The HCBF research was conducted by YouGov on 13 October 2020 amongst a representative sample of 1,107 small business leaders spanning industry sectors.