Written by Kunal Sawhney, CEO, Kalkine
When the confidence among the small businesses was already showing signs of dwindling amid record-high inflation and supply chain bottlenecks, the latest report of the Blackpool-based Federation of Small Business (FSB) will shake it further. The survey report revealed that in the first quarter of 2022, small businesses struggled to access finance.
The survey results FSB, the UK’s largest campaigning group for small businesses, has highlighted that companies and banks in Britain remained concerned about the worsening economic outlook, which resulted in lending to small businesses falling to its lowest since at least 2014. Just 9 per cent of small businesses applied for finance in the first three months of this year, and the number of approvals for finances reached a record low of 43 per cent.
The most striking thing was that a majority of smaller businesses sought finance to help with their cash flow requirements. Not only this, one in ten small businesses are mulling closing, downsizing, or even disposing of their businesses over the coming year.
Deteriorating small business scenario
Small businesses have been hit hard in the country, first by the Brexit and followed by the unprecedented event of the Covid-19 pandemic. The number of small businesses in Britain witnessed a drastic fall of 6.5 per cent to around 5.5 million at the start of 2021 compared to the last year. Small businesses, especially the small and medium-sized enterprises (SMEs), that account for 99.9 per cent of them and are the major employment generator, with three-fifths of the total UK private sector employment.
SMEs have faced a challenging situation in 2021, which is still continuing, with many reporting no-cash and a low level of confidence in survival, as they not only had to deal with the challenges associated with the COVID-19 pandemic but also with the implications of Brexit during 2021. Small businesses continued experiencing significant challenges limiting their capabilities to engage in innovation and finish projects on time.
Lending for small businesses is getting tough
Going by the FSB survey results, the majority of the 1,211 small business owners and sole traders surveyed in March and April sought traditional overdraft or loan products, and 25 per cent went for asset-based finance, about 7 per cent sought funds through P2P lending platforms, while 5 per cent via crowdfunding. Small businesses are already struggling to repay the support taken from the government during the pandemic, and if the further funding dries up, the possibilities are that they will default and ultimately get closed.
Even the latest report from the Bank of England (BoE) has shown the annual growth rate of lending to SMEs reached a record low. There have been business disruptions that have been stressing the revenue generation of small businesses; while many in the survey reported late payment of invoices; these could be the reasons they are delaying repayments.
Final thoughts
The central bank has not only raised concern over the declining lending to the small businesses but has England warned of a sharp economic slowdown and a recession, with inflation surging to over 10 per cent record levels by the end of this year. At this juncture, if the lenders start shying away from the small businesses, it could turn detrimental to the already faltering economic recovery. Small businesses contribute a major chunk to economic growth and are a major source of employment generation. Now is the time for the lenders to come out of their outdated lending processes and rigid criteria to support small businesses and the nation’s overall economy.