By Carl Hasty, Director of Smart Currency Business
With GDP figures out this week, there has naturally been a lot of speculation surrounding whether the UK will technically avoid a triple-dip recession. However no-one is disputing that the economy is a long way from achieving meaningful, sustainable growth.
Pages in the business news are awash with talk of the Funding for Lending Scheme, and whether it will ultimately lead to the desired lift in lending to businesses, particularly if it is extended. Yet its impact on the economy may not be as dramatic as hoped given that many British companies, particularly SMEs, are shunning bank lending in favour of organic growth through the reinvestment of profits.
In a recent survey of its client database by Smart Currency Business, a clear majority (57.7 per cent) stated they are funding their expansion through profit reinvestment. Less than one in six (15.4 per cent) admitted a reliant on bank loans, and a similar proportion sited access to finance as the major constraint on growth for their business. More tellingly, of the wealth of sources offering business advice, not a single respondent to the survey acknowledged seeking advice from their bank.
If these results were replicated across the entire UK economy, then it would seem obvious that helping firms increase their ability to generate profits rather than increase their ability to take on new debt is the way toward generating growth in the British economy.
Expanding trade links with high-growth countries, such as the BRIC nations, is one of the most straightforward means of achieving such a result. By helping businesses with the time and capital outlays required to expand into these new markets, both Government and the private sector can help small businesses to introduce new revenue streams, decentralise their risk across multiple trading markets and, in doing so, maintain their reliance on sustainable self-funded growth.
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