Growth, working capital and refinancing: The geography of post-pandemic regional financial resilience in UK SMEs

Understanding how small firms adapt and adjust financially following exogenous shocks is crucial and acts as a harbinger of regional financial resilience levels. Therefore, it is important to determine what shape firms are in as they emerge from a shock such as the Covid-19 pandemic, particularly with regard to their ability to finance new growth enhancing activities. Yet not all firms are ready to invest in future growth and simply need an injection of working capital while others need recourse to refinancing existing debts. To flesh out the concept of regional financial resilience, this paper examines how SMEs across different multi-scaler geographies (i.e. regions, sub-regions and districts) of the UK have been raising new loans to finance growth, working capital and/or simply refinancing their existing debt. Using a rich loan dataset for the UK covering 2021–2024 we find stark spatial variations in the proportion of firms reporting growth as the key mechanism for using the loans and these are strongest at the most disaggregate unit of spatial analysis examined (i.e. districts). Our findings suggest the future development of the UK economy is likely to display a very uneven spatial pattern with some areas investing heavily in growth, while for others, addressing cash flow problems or issues associated with existing debts are paramount. In response to the pandemic, small firms are exhibiting a complex spatial patchwork of regional financial resilience across the UK’s deeply variegated space economy.