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FORUM OF PRIVATE BUSINESS: Research shows small firms struggled to
access finance before credit crunch
(M2 PressWIRE Via Acquire Media NewsEdge)
RDATE:29082008
Small businesses struggled to access finance in the months before the
credit crunch began to bite, according to a survey carried out by
Cambridge University's Centre for Business Research. The research into
the banks' financing of small businesses was commissioned by the
Department for Business, Enterprise and Regulatory Reform's (BERR's)
Access to Finance Expert Group, of which the Forum of Private Business
(FPB) is a member.
According to figures from the survey, 29% of respondents seeking
finance in 2007 were wholly or partially rejected, compared to 26% in
the previous survey, which took place in 2004. The funding needs of
small businesses soared during the three years between the surveys. On
average, firms sought GBP470,000 in 2007, compared to just GBP82,000 in
2004. The FPB is warning that the situation for small firms is likely
to have deteriorated even further since the most recent survey, as a
result of the economic downturn.
"The research shows that, although the funding requirements of small
businesses rose steadily during 2007, the likelihood of banks awarding
funds fell just as steadily," said Nick Palin, the FPB's Director of
Finance and Administration. "The credit crunch has made accessing
finance much more difficult. It is important that the Government
streamlines the application process and that small firms consider
switching banks, or seek out the alternative funding streams.
Businesses are also not cutting costs where they could - for example,
GBP200 million in small business rate relief goes unclaimed each year."
In addition, according to the research, the majority of small firms are
not taking advantage of capital allowances available on business
assets. Only a third of respondents were aware of capital allowances,
with just 9% claiming them. Even fewer (2%) claimed allowances for
investing in green' assets.
Although the number of firms seeking external finance fell in 2007
across most industry sectors, in manufacturing it increased from 39% to
45%. Of the businesses surveyed, 56% sought new or extended overdrafts
during the past three years, compared with 32% between 2001 and 2004.
However, 10% of firms were rejected when seeking new or extended
overdrafts and 16% were denied credit cards.
Businesses had most success with the least-used sources of finance -
asset-based finance, or factoring, and equity (93%). Other sources
included leasing and hire purchase (88% success, but 10% outright
rejection), and loans and mortgages (85% complete success, and 4%
outright rejection).
The research found that other factors relevant to small firms' finances
were:
The proportion of small businesses seeking finance increases with the
size;
Construction and other sectors have a significantly lower proportion
seeking finance than in manufacturing;
There are no significant differences across regions, or between
deprived and other areas, in terms of the numbers of firms seeking
finance;
More profitable companies are less likely to seek finance;
There are no significant gender differences associated with firms
seeking finance;
Entrepreneurs seeking to improve their businesses, those sourcing
advice from others and firms with a qualified finance manager are more
likely to seek finance;
Super growth' firms are more likely to seek finance.
Super growth' businesses were defined as those experiencing turnover
growth of 30% or more in each of the previous three years, and
intending to grow in the next three years. The research showed that 50%
of these businesses were more likely to seek finance, compared to 33%
of other businesses.
Although only 2% more firms surveyed said they had switched banks in
2007 than in 2004 (up from 2% to 4%), a much higher proportion (17%)
had considered a move. Just over a quarter would consider switching to
another bank, if approached. However, two-thirds considered it unlikely
that they would do so in the foreseeable future. Of the firms that did
switch, 89% found the change to be extremely easy' or easy'. Bank
charges were their biggest bugbear (40%). Other major issues included
the banks' poor service.
FPB member Geoff Rogers, of Geoffrey Rogers Chartered Accountants and
Tax Consultants in Plymouth, called for more support for small firms
suffering because of the credit crunch, including both finance and
guidance.
"The Regional Development Agencies (RDAs) should earn their keep now
and provide free support and coaching, financial aid, and cheap loans
and grants for ailing businesses in order to prevent insolvency," said
Mr Rogers. "It would save jobs and possible benefit payments, as well
as ensuring the continuation of small businesses in the long term."
He added: "Spanish regional agencies have launched massive financial
campaigns to prevent businesses becoming bankrupt, especially within
the construction industry. If they can do it, why can't we?"
Notes to editors
The FPB launched its Think Smallest First' campaign in June 2008.
Further information is available at: www.thinksmallestfirst.org.
To coincide with the launch of the Think Smallest First' campaign, the
FPB also unveiled its petition on the Downing Street website in June
2008: http://petitions.pm.gov.uk/Small-businesses/.
Broadcast media - the Forum of Private Business now has ISDN capability
and can provide comment, in quality audio, at short notice.
The FPB can also provide journalists with localised and sector-specific
case studies.
The FPB is pleased to support the Children's Cancer and Leukaemia Group
(CCLG): www.fpb.org/charity
The FPB now has an online discussion forum, on which people can share
information, join the latest debates affecting small businesses in the
UK and vote in online polls. Visit the forum at www.fpb.org/forum.
About the Forum of Private Business
The Forum of Private Business (FPB) was formed in 1977 and fights on
behalf of private businesses. The FPB represents approximately 25,000
UK-based businesses, which in turn employ in excess of 600,000 people.
The FPB also provides a range of business services aimed at increasing
member efficiency and profitability.
CONTACT: Phil McCabe, Media and PR Officer
Tel: +44 (0)1565 626 019
Tel: +44 (0)1565 654 673
Tel: +44 (0)7775 756 312
e-mail: phil.mccabe@fpb.org
WWW: http://www.fpb.org
((M2 Communications Ltd disclaims all liability for information
provided within M2 PressWIRE. Data supplied by named party/parties.
Further information on M2 PressWIRE can be obtained at
http://www.presswire.net on the world wide web. Inquiries to
info@m2.com)).
Copyright ? 2008 M2 Communications Ltd.
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