By Daniel Hunter
Challenging domestic conditions, access to finance and weak consumer demand are taking their toll on the optimism of small firms according to the latest data from the Federation of Small Businesses (FSB).
The FSB's ‘Voice of Small Business' Index showed small firms' confidence levels tumbled 5.8 points to -4.5 in the third quarter — the fourth lowest score since the start of 2010. While disappointing, it is 20 points higher than in Q4 2011 when the economy fell sharply back into recession, pointing to an economy flat-lining rather than going into reverse.
Moreover, small firms continue to show their resilience, with half of the 2,600 respondents wanting to grow in the coming 12 months.
These growth intentions continue to be threatened by an increase in the number of businesses being refused finance. In the quarter, 21.6 per cent of respondents had applied for finance — down one percentage point on Q2. However, the number of refusals increased from 40.6 in Q2 to 42.4 in Q3. And almost two thirds of members think the availability of credit is poor.
More than 60 per cent of firms also think that finance is unaffordable — this has increased each quarter in 2012. The FSB will be keeping a close eye on the Funding for Lending scheme to make sure that small firms do get cheaper finance through it.
The FSB has welcomed proposals for a state-backed business bank to address the lending issue. The organisation has long called for such an institution to be modelled on the Small Business Administration in the US, set up in 1953, which has successfully helped small firms access finance through a range of loan products. However, it has cautioned that proposals need to be well thought through and not rushed if it's going to benefit the economy in the long-term.
Other key findings show:
• Across the UK, 10 in 12 regions saw a decline in confidence — only London and the east Midlands saw an increase
• Fifteen of the 18 sectors surveyed were more confident than in Q2. Business services sector and small manufacturers continue to perform well, but for those that rely on discretionary spending, confidence fell resulting in the overall negative reading
• Construction businesses saw a fall in confidence and so Government plans to underwrite construction projects may help to boost the sector
• For a 10th consecutive quarter firms reported a fall in revenues meaning cash-flow is further constrained
• Employment intentions remain stable with three quarters saying they didn't plan to make any changes but a net balance of 3.7 per cent said they would reduce staff levels
• Half of respondents are still struggling with the price of fuel, but this has fallen proving that postponing the 3p rise until January was the right thing. Cost pressures from energy, utilities and production inputs look to be falling
As well as putting firm proposals in place for the state-backed business bank the FSB is also urging the Government to help small firms take on staff so they can grow their business and in turn the economy. With party conference season approaching, the business organisation will be talking to MPs about the importance of small firms to creating jobs and the steps needed to boost growth.
"It isn't surprising that confidence fell back into negative territory as the recession entered its third quarter as growth flat-lines," John Walker, National Chairman, Federation of Small Businesses, said.
"The message is clear though — businesses want to grow and invest but they need a helping hand to do so. It is frustrating that bank finance is still difficult to get. No matter what is said about demand, more than 40 per cent of applicants have been refused in each quarter this year. This has to change if growth aspirations are to be met.
"I'm pleased that the Chancellor and Business Secretary have committed to looking at a small business bank. While it is urgent to address access to finance, it is critical to get the right structure in order for it to work properly. It must be for the long-term and not just a short-term measure for the recession."
Join us on