By Marcus Leach

More than a quarter of small and medium-sized enterprises (SMEs) are ‘only just surviving’ or being forced to make cuts and rationalise operations according to a report.

Furthermore, according to the quarterly Bibby Financial Services Business Factors Index, almost one in four say trading conditions are worse than a year ago, while more than a third do not expect the UK economy to recover for at least three years, painting a grim picture of business confidence.

The Index also found:

- Nearly two thirds (59 per cent) of companies are planning on cutting costs, while half intend to manage suppliers more carefully to prepare for further economic challenges.

- Almost one in four (23 per cent) businesses have not seen any signs of recovery.

- Nearly a quarter (24 per cent) of firms believe a loosening of lending criteria would most help to stimulate economic recovery.

- More than three quarters (79 per cent) of businesses have not applied for any external funding in the past 12 months

"With murmurs of an impending second ‘credit crunch’ rife, UK businesses are still in for a bumpy ride. The second quarterly Index shows businesses are a long way from recovery and, although turnover is stable, there is a danger of negative growth turning into a backwards slide towards recession," Edward Rimmer, UK chief executive of Bibby Financial Services, said.

“However despite the perceived ‘doom and gloom’ our Q2 research shows 39 per cent of businesses across the UK are hopeful for the future. Our regional breakdown shows levels of optimism rising as high as 70 per cent in East Anglia and around the 50 per cent point for many areas.”

The impact on business activity and confidence as a result of the euro-zone crisis in Q2 2011 has seen turnover levels remain stable, producing an Index reading of 96.7, fractionally below the first quarter (96.8).

This suggests stagnation for the UK’s small and medium-sized businesses and reflects the latest GDP figures, which reveal the economy grew by just 0.2 per cent in the last quarter.

“If we are to counteract the effects of economic uncertainty, it is imperative firms have access to the necessary funds to maintain a healthy cashflow and invest in growth, and it will be up to the finance industry to work with businesses through these challenging times," Rimmer added.

“While the Government has pledged its support, through initiatives such as Project Merlin, which has - as reported this week - lent £37.4 billion against the annual target of £76 billion to small and medium-sized businesses, the fact that 80 per cent of businesses did not apply for external funding over the past 12 months is a worrying indictment of firms’ financial confidence and a problem that needs addressing if we are to achieve a full recovery.

“To help the country get back to pre-recession levels of business turnover and profitability, I would like to see more businesses investigating other funding options such as invoice finance, which releases cash against unpaid invoices, as a first choice solution.”

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