FSB: Big banks squeeze small firms’ credit further, as confidence in property and finance slump

Big banks squeeze small firms’ credit further, as confidence in property and finance slump

The Federation of Small Businesses (FSB) latest ‘Voice of Small Business’ Index – its quarterly survey of confidence among UK small business – reveals:

Big banks have renewed their lending squeeze: four in 10 small firms applying for credit are refused
A 10th consecutive quarter of job cutbacks with a net balance of 3.9% of respondents announcing layoffs
Confidence among Britain’s small businesses and entrepreneurs has fallen in every industry sector except those working in health and motor services
The largest drop in confidence over the quarter in the property market and the financial services sectors – both critical to London’s fortunes. As a result of this, confidence of London’s firms is now on a par with Northern Ireland, while firms in eastern counties and the north east show renewed optimism
Despite pressures, confidence just remains in positive territory at +1.3, down 0.9 points

Credit
More than four in 10 (41%) small firms were refused finance from high street banks as confidence dipped in the second quarter. With the economy in recession, the FSB’s Small Business Index measured 1.3, down 0.9 points from 2.2 in Q1 as firms continued to feel pressure from rising overheads.

Despite the credit squeeze, more than 50 per cent of respondents said they still plan to grow their businesses over the coming 12 months. But the proportion of firms looking to grow rapidly shrank from 10.9 per cent in Q1 to 7.2 per cent in Q2.

With one in five firms saying access to finance is the main barrier to achieving growth aspirations, the FSB believes the credit squeeze will impair small businesses’ growth plans, reduce new job creation and further set back the UK’s struggle to emerge from recession.

The FSB has long called for more competition in the banking sector and strongly believes that small firms – which collectively produce more than half Britain’s wealth (GDP) – will only be able to access the reasonably-priced finance they need when there is more competition in the banking sector.

Until and unless this happens, small firms and entrepreneurs’ growth aspirations, which have held up remarkably well over recent years, may be crushed. The FSB has encouraged the Chancellor to ensure the proposals on increasing competition laid out by the Independent Commission on Banking are seen through in his Banking Reform White Paper, issued last week. The FSB also wants to see that the new ‘funding for lending’ scheme gets cash to those firms that need it with a clear reporting process so that tangible evidence is given to show the money is being passed on to small firms and not just shoring up the banks.

Sector confidence
Of 17 industry sectors measured, confidence fell in all but two. Confidence rose moderately in health and social work related firms, as well as vehicle sales and maintenance companies. All other sectors reported a fall with financial and real estate services showing a dramatic decrease. There were further sharp falls in retailing, leisure, sports and entertainment, as well as hotels and the restaurant and bar trade. A moderate decline in confidence was reported in manufacturing, IT and other business services.

London and the north east of England
Reflecting the sharp decline in confidence in key London industries – finance and property – confidence levels in London remained in negative territory. Confidence in the capital is now on par with Northern Ireland at -6 points. 

By contrast, confidence has bounced in the north east with the region reporting a 25-point jump over the quarter putting it at the top of the league table – a remarkable achievement given the region’s recent and severe public sector cuts.

John Walker, National Chairman, Federation of Small Businesses, said:

“If small firms cannot access credit it constrains their investment plans. We know from past research that many small businesses missed growth opportunities because they couldn’t access the money they needed. There needs to be more competition in the finance and banking sector because only when there are more options to choose from will small firms get a fairer deal. There also needs to be more alternative sources of finance that small firms can tap into.

“This ongoing credit squeeze is becoming critical. Government is relying on small business growth to drag the UK out of recession. The will of small businesses to grow is there but the money to enable them to do so is not.

“Unless this situation is addressed effectively and rapidly, that confidence might evaporate altogether, with dire consequences for the economy. A further issue is that with 63 per cent of small firms saying that fuel is the main upwards driver of business costs, we urge the Chancellor to cancel the planned 3p rise in duty for August.”

ENDS

Notes to Editors

The FSB is the UK's leading business organisation with around 200,000 members. It exists to protect and promote the interests of the UK’s Real-Life Entrepreneurs who run their own business. More information is available at www.fsb.org.uk

The FSB ‘Voice of Small Business’ Index is a quarterly macro-economic report analysing the trends of small businesses in the UK market. To view the ‘FSB Voice of Small Business’ Index please go to www.fsb.org.uk/small-business-index 

This report has been produced by the centre for economic and business research (cebr) for the FSB. The figures are based on a survey of FSB members, carried out by Research by Design, between 8-21 May 2012 and received 2,842 responses. To find out more visit www.fsb.org.uk/survey-panel

Contacts

Pierre Williams 020 7592 81228 / 07917 628 998 pierre.williams@fsb.org.uk
Prue Watson: 020 7592 8121 / 07825 125 695 prue.watson@fsb.org.uk
Sara Crane: 020 7592 8113 / 07595 067068 sara.crane@fsb.org.uk

For regional FSB contacts please go to www.fsb.org.uk/regions