Britain’s smaller companies buckle under pressure

A report by the CBI laid bare the hardship of Britain’s SMEs, which account for almost 60pc of private sector employment, as plummeting orders both at home and abroad in the three months to October wiped out confidence.

Smaller manufacturers struggled to sell their goods overseas, with exports falling at the fastest pace in more than three years, and further falls expected in the coming months.

Production fell over the period, margins are being squeezed and businesses expected to cut jobs in the coming three months, reports The Telegraph.

“The economic climate clearly remains tough, with businesses exposed to subdued conditions both at home and in our major export markets,” said Lucy Armstrong, who chairs the CBI’s SME council.

The Federation of Small Businesses said the recession might be over but the plight of SMEs which have been hammered during the financial crisis was not.

“Confidence and policies for growth are urgently needed. Access to finance remains a big issue for too many small businesses. Late payments is also a big issue,” said Mike Cherry, national policy chairman at the FSB.

“The latest indicators showed we are coming out of recession which is a good thing but SMEs are still cautious about the way forward.”

Bank have been increasingly risk averse during the crisis and less willing to provide smaller companies with the funding they need to grow. Scott Knight, a partner at BDO, said companies were so uncertain about the future that they were seeking merely to “survive and not thrive.”

Figures from finance provider Syscap showed that the Government’s Funding for Lending Scheme, introduced to boost cheaper loans to businesses and consumers, was failing to reach the smaller companies most in need of help.

Interest rates on loans to small businesses actually rose in the third quarter to 3.85pc on an average loan under £1m, from 3.76pc in the second quarter, after FLS was introduced on August 1. In contrast, average interest rates on loans over £20m for large businesses fell to 2.34pc from 2.48pc over the same period.

Philip White, chief executive of Syscap, said that FLS was the latest in a series of failed attempts by the Government to secure affordable funding for SMEs.

“While Funding for Lending seems to be having a positive effect for some, small businesses are still struggling to get loans at commercially viable rates.

“After more than four years of serious attempts to stimulate bank lending, no scheme has managed have a substantial impact on lending to small businesses.”

Mr White said the Government must make policy changes to make sure FLS does not become another “missed opportunity.”

Andrea Leadsom, the Conservative MP, has argued that late payments to smaller companies by bodies including the NHS and local councils is holding back the economy. She welcomed a parliament debate on “this critical issue”, scheduled for Thursday.