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Lack of lending hits businesses: FPB

Nicola Sullivan

Rising costs, late payments, problems with cash flow and access to finance are among the top concerns for businesses, research by the Forum of Private Business has found.

Its Cash Flow and Finance Panel Report showed that 42 per cent of businesses see continued rising costs as one of the biggest financial concerns. However the figure has fallen from 54 per cent in 2012 and 55 per cent in 2011.

The report also found that 38 per cent were concerned about cash flow and late payments, compared to 33 per cent in 2012 and 25 per cent in 2011.

It stated that small businesses with employees were the most vulnerable to cash-flow issues as they did not have the same flexibility of ‘one-man bands’ and the same resources as larger organisations.

The findings showed access to finance was cited as a problem by 23 per cent of respondents, compared to 17 per cent in 2012 and only 6 per cent in 2011. Some respondents said the banks were not lending and instead tried to push them into solutions, such as loans and invoice discounting, as a replacement for overdrafts.

Businesses worried about the cost of finance rose to 8 per cent from 6 per cent in 2012, while lack of choice for finance was cited as a concern by 19 per cent, down from 20 per cent the previous year.

The report concluded that many businesses were struggling to manage the expense of essential items as they were reluctant or unable to pass the full cost on to their customers. The enforcement of payment terms can present challenges and the length of the terms for customers was a concern for 27 per cent of respondents. The findings highlighted that banks were unhelpful to businesses. High charges, inappropriate recommendation of invoice finance and inconsistent delivery of money into accounts were given as reasons why banks had hindered businesses from improving their cash flow.

Phil Orford, chief executive of the FPB, said: “Taken in a wider context these results are alarming because it suggest a marked deterioration in confidence of the finances for small and medium-sized enterprises. We suspect this is as a result of the banks’ ongoing failure to deliver affordable finance to small firms and the fact businesses were increasingly worried about cash flow, and being paid late is surely linked. These are issues borne of credit being scarce and difficult to obtain. The recently announced Office of Fair Trading investigation in to the lack business lending by the banks underlines this.”

Adviser comment

Carl Melvin, managing director of Renfrewshire-based Affluent Financial Planning, said: “I think businesses really need to focus on looking at where they can make economies and not just say ‘we have always done it this way so that’s the way we will always do it.’ They need to be open to change and perhaps find better and more and efficient ways to reduce costs.

“Businesses that don’t control their finances will have difficulties. There are quite a few businesses, including some IFA firms, that don’t actually produce accounts every month. Businesses have to be more businesslike in paying attention to costs. On the late payments, a lot are just desperate to get business so they are perhaps frightened of saying no to a potential new customer. Because they are desperate to get revenue in the door they perhaps don’t apply the strict criteria for vetting the customer as a potential credit risk.