Small businesses have had it tougher than most in recent times. The bleak atmosphere which has surrounded the UK’s economy since the beginning of 2008 has had numerous knock-on effects. The number of people out of work has grown significantly, as has the cost of basics like food, water gas and electricity. Also, many people still in work have found that their wages have been squeezed too.
All this has had a profound impact on consumer demand, the very thing which drives economies worldwide. Consumer demand in the UK has fallen in the past five years, which has often meant that smaller businesses, particularly those in the retail sector, have had to work harder than ever to try and keep sales from plummeting.
Economic Outlook and Recession Fears
No triple-dip trauma
Earlier this year, the entire business community braced itself for the possibility of the UK’s economy entering a third recession in the space of five years. Known as a ‘triple-dip’, it would have been seen as a further setback, especially for SMEs who have razor-thin profit margins to work with. Fortunately, it was averted to the relief of everyone directly affected.
The fact that a triple-dip recession didn’t happen is a great piece of news. While it doesn’t exactly herald an immediate upturn in the country’s economic fortunes, it does at least mean that the potential for a recovery to pre-2008 levels looks a little higher than it did earlier this year. Although the forecast for economic growth in 2014 has been revised downwards, things could be worse.
SMEs and Access to Bank Lending
Banks to open up?
Since 2008, one of the major problems that small businesses have faced is restricted access to loans from banks and building societies. Many start-ups find that they need a loan to help finance investment in a new office, computing, a company vehicle or furniture. In the current climate, many lenders may see start-ups and existing SMEs as being too risky to lend to.
Reluctant lenders have become something of a bugbear for SMEs. In spite of the fact that many of the UK’s largest banks have received funding from central government to help keep them afloat, many lenders have refused to approve loans to companies even though, on the face of it, they don’t seem particularly risky to give money to.
New Initiatives to Support SME Lending
A new lifeline
Not long after a new business bank was established by the current Business Secretary Vince Cable, another initiative aimed squarely at SMEs was launched to try and further facilitate lending to them. Worth an estimated £300m, this scheme will see more money go to banks, and the finance received must be given to small businesses who want to try and secure their future.
The Investment Programme isn’t guaranteed to succeed straight away, but for hard-pressed smaller companies, it’s a welcome piece of news. The fact that access to loans has been opened up a little means that their chances of getting the money needed to help them grow or pay for much-needed pieces of equipment to help them function on a day-to-day basis.
£300m might seem like a comparative drop in the ocean, especially as the collective worth of SMEs to the UK economy is roughly 3,500 times that amount. However, any step towards trying to improve access to finance should be welcomed with open arms, especially at a time when sustained economic growth isn’t expected to happen for at least 18 months.
Opportunities for Growth Amid Recovery
Taking advantage
While the UK economy has been in the doldrums for some time, the likelihood that there may be a way out for companies of all sizes is something SMEs may be well-placed to take advantage of. Confidence is slowly returning to some sectors, while many people who work with small firms are advising them to try and make the most of what they have available to them.
A spokesperson from Make It Cheaper has said of the Investment Programme and the triple-dip recession not actually taking place:
“It’s a sign that things are gradually improving, but the GDP is still 2.6% below the level it was at before the financial crisis in 2008. To put this into context, a healthy economy grows by 10-12% over a five-year period – so it’s clear that we’re still living in challenging times.”
Lingering Economic Challenges for SMEs
Grasping at straws?
Although there are a few pieces of good news for SMEs, all isn’t that bright right now. Economic growth remains slow, while healthy figures in the region of, say, 2% or more annually look a long way off. For the UK’s economy to return to pre-2008 levels, growth figures in excess of 3% annually are required, and that doesn’t look likely in the short to medium-term.
While growth remains minimal at best, unemployment is likely to stay high as few jobs are being created. Meanwhile, millions who are currently in employment still have to contend with high inflation pushing prices of basics like food higher, which means that they have less disposable income to work with. This worrying trend is showing no signs of stopping anytime soon.
What might be more worrying for SMEs in need of a loan is that, despite the extension of the flat-lining Funding for Lending Scheme, which like the Investment Programme was meant to make lending to small businesses, hasn’t worked out. According to reports, lending by banks to business is still pretty low, which will come as a disappointment to the government and SMEs nationwide.
Lessons Learned from the Recession
Could it be worse?
When the UK economy contracted by more than 2% during the middle of the recession, it seemed that for many businesses, all sense of hope was lost. Downsizing, showing little or no desire to grow and even shutting up shop routinely afflicted SMEs. The evasion of a third recession has meant that they’re now on slightly firmer ground.
The fact that there’s more than one piece of positive news shows that things have improved, but not at as fast a pace as many will have hoped for.
