SMEs: financing not the biggest problem?

The Government should focus on stimulating demand, not bullying the banks, a new survey claims.

by
Last Updated: 31 Aug 2010

The prevailing wisdom in recent months has been that financing was the biggest issue facing the UK's small businesses in the recession. But a new survey by the Open University suggests that the slump in demand should actually be the greater concern: it found that 64% of SMEs considered falling demand to be the biggest problem affecting their business, while just 25% cited bank financing issues. Which suggests that Government efforts to bully the banks into lending more money might be better expended elsewhere...

In other words, the survey shows that almost two-thirds of the UK's small businesses are finding it hard to hang onto customers. This is perhaps not surprising, given that confidence is down across the board (even on the consumer side, despite Wednesday's surprise bounce in April retail sales). But it also makes it a far more pressing issue than financing troubles, difficulties with suppliers or trade creditors (cited by 14%), or problems with redundancy and staff morale (13%).

According to ACCA, the accountants' trade body that sponsored this research, the figures show that the current recession is not developing like that of the early 1990s - when the availability of finance was the key concern. In fact, it says, the latest figures from the BBA suggest there has been a 'big rise in deposits and term lending'. Now the cynic may point out that this survey is also co-sponsored by Barclays, which might make it less inclined to bash the banks. But the numbers do suggest the situation is improving, if only slightly.

As such, says ACCA, the Government 'should primarily focus its efforts on stimulating consumer demand'. Unfortunately, with interest rates slashed almost to zero, the only way of putting extra money into people's pockets would be to cut taxes. And as Alistair Darling made perfectly clear last month, the Government is now far too skint for that (if anything, taxes will have to go up to plug the enormous budget deficit). So will the politicians hold their hands up and admit that their fiscal ineptitude has left us with no means to address the real problem? Or will they continue to make the banks the public whipping boys for our current woes? We wonder...

Either way this survey paints a gloomy picture for SMEs. With unemployment set to rise (if not taxes), demand could actually get weaker as the year goes on – and they’re unlikely to get much outside help.


In today's bulletin:
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Bank of England pours cold water on recovery optimism
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SMEs: financing not the biggest problem?
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