SMEs see green shoots

Sunrise: many SMEs are beginning to feel the worst is over

Small business owners are starting to see signs of recovery with more than a quarter claiming their business is more viable now than a month ago, research has found.

In its monthly Economic Downturn Panel survey, The Forum of Private Business (FPB) reported that 26 per cent of members saw improvements to the viability of their business this month. This is double the number who reported a reduction.

Support from banks has deteriorated, claimed 18 per cent of respondents, with 12 per cent seeing an improvement. Despite the gloomy looking figures, this represents the highest level of satisfaction with banks since the panel was launched last year.

Banks' provision of overdrafts improved for eight per cent of business owners this month while three per cent reported a deterioration. Nine in ten claimed overdraft terms and conditions were unchanged. The average lending rate of 6.6 per cent remains significantly higher than the 0.5 per cent base rate but has fallen a fifth of a point from last month.

The 6.4 per cent average interest rate for loans is flat on last month and all respondents reported there were no other changes to loan terms and conditions. SMEs are increasingly finding additional security is not required to obtain loans, with just two per cent facing such demands. This is down from five per cent last month and 14 per cent in December.

The survey finds 21 per cent of respondents are seeing healthier markets for goods and services and 16 per cent seeing greater market competition. However, 14 per cent reported reduced competition and 29 per cent claimed markets continue to worsen.

Cashflow concerns remain SMEs' biggest headache, with not one respondent experiencing better payment practices or an improvement in the cost of complying with regulations. The cost of compliance increased for 34 per cent and late payment problems increased for 57 per cent.

Despite the early signs of recovery, lack of business confidence is a key issue for nine per cent of business owners. Other things playing on SMEs' minds include exchange rates and lack of finance, which were cited by eight per cent. Gaining and retaining business, financing growth, red tape and competition also featured.

FPB chief executive Phil Orford said: "There are signs that business confidence is returning. Significantly more business owners can see a future for their companies than are pessimistic about their chances of survival.

"A slight increase in support from the banks is likely to be a major factor behind this. Although there is still more dissatisfaction with lenders than there is approval of them, more struggling small businesses are reporting positive experiences. This must be nurtured by further measures to address the cost of lending, which remains restrictive, and by policies from the government to stimulate the economy and protect both employers and employees."