Rising credit and interest rates are hurting small firms

Of the small firms surveyed as part of the SBRT’s report for the first quarter of 2008, 74% with both overdrafts and loans reported an increase in lending rates over the last six months. Rising interest rates are another concern, with 59% of respondents indicating that they had had a ‘negative’ or ‘very negative’ impact on investment. Purchasing, employment and sales have also been hit.

“The survey shows trading conditions have declined significantly this quarter in all areas – sales, employment and investment, with only medium-sized businesses suggesting any growth in levels of employment,” said the FPB’s Chief Executive, Phil Orford. “This contrasts with the optimism expressed at the end of 2007, where confidence in the future level of economic growth still showed signs of remaining stable. Expectations have weakened considerably since the last quarter; each measure has moved into a negative balance and all sizes of businesses, in all regions of the country, now expect a much lower performance for 2008.”

The volume of smaller businesses reporting a fall in sales increased from 26% to 33%, compared to the survey carried out in the fourth quarter of 2007. Investment growth also declined significantly; the net balance decreased from 8% to -5% for micro businesses, small businesses saw a fall from 8% to 2%, and medium-sized businesses reported the most significant decline, from 27% to 9%.

Smaller firms, in particular, are struggling to cope with the spiralling cost of credit, but the FPB is helping members to guard against cash flow problems through its partnership with Cattles Invoice Financing.

“Monitoring and maintaining a healthy cash flow is essential, but often one of the most difficult and time consuming of tasks,” said the FPB’s Senior Member Services Representative, Philip Moody. “Luckily, there is other support available to help combat the effects of the current credit crisis, and perennial problems such as late payment.”

He added: “The FPB’s partnership with Cattles Invoice Finance offers flexible funding solutions, saving members an average of £3,000 in the first year. Firms can access up to 85% of the value of an invoice within 24 hours of it being raised, which means that they do not constantly have to chase payments and client relationships are not continually put under pressure.”

Credit restrictions hit sales in the business services sector, including finance and real estate, more than in any other, with 36% of respondents indicating that they had had a negative impact. This was followed by mining, energy and water (33%), agriculture and fishing (32%), manufacturing and construction (both 29%), wholesale and retail (28%), hotels and restaurants (28%), transport and communications (25%), and education and health (17%).

Most of the smaller businesses surveyed were pessimistic about the prospects for future growth, with only 28% expecting sales to grow, whilst only 12% forecast an increase in employment, and 16% anticipated greater investment.

“There is now little doubt that, for the UK’s small businesses, trading activities have gone into decline from the stable or gradual growth position over the last year,” said the SBRT’s Chairman, Brian Wolfe. “Whilst, for some businesses, it can be said that employment has remained stable or even grown slightly, the overall picture is one of a general decrease in employment levels, especially for the micro-business community.”