For all the rhetoric about the SME being the UK’s route out of recession and back to prosperity, firms are not doing so well, if the FSB’s latest survey has got it right. The federation’s most recent quarterly ‘Voice of Small Business’ index (which questions around 3,000 firms) found that 40% of small firms continue to be refused credit, and for the 10th consecutive quarter, firms are looking at laying people off, with a balance of 3.9% admitting they will downsize in the coming months.
The squeeze in credit can be largely attributed to eurozone woes – the prospect of a Greek exit from the euro has had bank bosses running scared dread: such a cataclysm could take a lot of banks under. The country may be on the verge of finally forming a coalition government, but it has certainly been a tense few weeks. For this reason, lending more to vulnerable SMEs was never going to come naturally. Not all firms see lending as essential to growth, however: more than 50% of those surveyed said they still plan to grow their company over the next year.
It is definitely the credit vs. growth dichotomy that is costing businesses at the moment, however. One in five said that access to finance is the main barrier to growth, and the FSB says that this is one of the main reasons why new jobs are not flooding the private sector. Confidence itself is falling: the survey looks at 17 industry sectors, and the number of firms with a confident outlook for the year ahead fell in all but the health and social work sectors.
Arguing that the government must do more to promote the growth of small business, the national chairman of the FSB, John Walker, said: ‘This ongoing credit squeeze is becoming critical. Government is relying on small business growth to drag the UK out of recession. The will of small businesses to grow is there but the money to enable them to do so is not.’
In the government’s defence, chancellor George Osborne has just announced a plan to introduce credit easing by giving banks £100bn on condition that they lend more freely. Let’s hope it works, but if history is anything to go by, then this is yet another scheme that will struggle against an economic climate that remains risk-averse…