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Small businesses’ continuing reluctance to borrow may point to a recovery that doesn’t reach its potential says business group

By jspiteri  |  Posted: February 27, 2014

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Despite the positive news showing improving business confidence in the economy and continuing export growth, the latest information from the SME Finance Monitor continues to highlight the Forum of Private Business’ ongoing concern that small businesses’ reluctance to borrow may point to signs of a protracted recovery.

Figures for the final quarter of 2013 showed the number of businesses who see the current economic climate as a significant obstacle to running their business in the next 12 months has fallen significantly to 21% – a fall of 5 percentage points from the previous quarter. The report also showed a continuing steady increase in the number of businesses undertaking international activity to 15%, a 5% increase from the first quarter of 2013.

Whilst business borrowing remained almost static in the quarter, the results highlighted a 10% fall from the previous quarter in the number of companies undertaking financial planning associated with borrowing to 49%. This fall in the numbers of small firms producing management accounts and written business plans which are essential prerequisites for traditional bank borrowing, coupled with a fall in business owners looking to invest personal funds could indicate that small firms are looking to their business profits to invest in future growth as opposed to looking to traditional finance. With continuing cost pressures on small businesses impacting on profits this could limit the small business investment needed and point to a protracted recovery.

Commenting on the report findings, Phil Orford MBE, Chief Executive of the Forum of Private Business, said:

“The latest figures from the survey show a marked decrease in the number of businesses worried about the economy as a barrier to investment. Equally, more businesses are looking to grow and fewer perceive a need to inject personal funds into their business. However, this is yet to translate into any significant increase in demand for finance. A solid recovery will be built on investment and a better trade balance in favour of exporting.

“The survey shows that most applications to banks are successful, though there is a need to work on finance for some newer businesses that have higher decline rates. As we have before, we highlight that finance is available to businesses who are looking to borrow to invest and grow, with success rates for applications higher than general business perception.”

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