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SMEs’ low confidence down to lending worries

on Monday, 17 September 2012. Posted in Funding, Finance

Confidence has understandably been shaky in the wake of the recession. But now it is starting to abate confidence is failing to recover

SMEs’ low confidence down to lending worries

Particularly in cash-strapped times such as these, confidence is king. Which is why the news that optimism amongst small- and medium-sized enterprises (SMEs) is still far from rebounding doesn’t make easy reading. According to the latest ‘Voice of Small Business’ index from the Federation of Small Businesses (FSB), confidence is still shaky at best. And the reason? Banks’ reluctance to offer funding to small businesses.

The ‘Voice of Small Business’ index, a quarterly report based on the responses of 2,584 FSB members, has shown that confidence levels amongst SMEs has tumbled to -4.5 – a drop of 5.8 points and the fourth lowest score since 2010. Whilst comparisons to its lowest point in Q4 2011, some twenty points below its current level, suggest things could be much worse, the report also reveals that there are some significant factors preventing firms confidence rebounding. Foremost of these is the difficulty in securing finance, with two-thirds of those spoken to stating they felt that the availability of credit was poor.

Despite the fact that over half of respondents indicated their desire to grow over the next 12 months, there has been a distinct lack of support from lenders and financial institutions. Whilst applications for finance dropped a percentage point down to 21.6%, the number of refusals has actually increased from 40.6% last quarter to 42.4%. Additionally almost two-thirds of firms felt finance was unaffordable, further damaging prospects for growth. Not only is this a rather damning portrait of UK finance but it also places an increased pressure on the newly launched Funding for Lending Scheme. Overall this adds yet more credence to the much-vaunted state-backed business bank and demonstrates the power of non-traditional avenues for securing finance.

Christopher Shaw, CEO of the alternative finance provider for businesses, Platform Black said that it’s no surprise confidence among SMEs is at a low ebb. “Many high street banks have become almost obsessively risk-averse, and the shutters that came down on their business lending arms in the wake of the credit crunch still have not been lifted,” he commented.

"This is having a chilling effect on business confidence, and the FSB's index showed SME confidence tumbling back into negative territory. With the banks still concentrating more on repairing their balance sheets than lending, the business finance market is changing. We're seeing ever more small businesses explore alternative sources of finance,” he continued.

“The face of finance is definitely changing; more avenues are opening every day to help SMEs find different ways to secure funding. Hopefully this will mean small enterprises won’t need to be as reliant on the big institutions for support and gradually bring a hopeful smile back to the face of British business.”

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