Access to credit for small businesses worsened in the final quarter of 2016, with increasing numbers turning to alternative sources of funding, research has revealed.
The Federation of Small Businesses’ (FSB) Voice of Small Business Index for the fourth quarter of 2016 showed despite increasing confidence nationwide, SMEs reported that credit affordability and availability had decreased.
The share of small businesses successful in their credit applications was 62 per cent – down from success rates of more than 70 per cent in previous quarters.
Meanwhile, the number of businesses using invoice finance more than doubled to 29.8 per cent from 13.7 per cent a year ago.
Responding to the report, Paul Marston, managing director of commercial finance at RateSetter, said: “While this report shows that confidence amongst small businesses has surged since the third quarter of 2016, it also highlights a more troubling trend that despite historically low interest rates, the availability and affordability of credit for small business has actually worsened.
“It’s more important than ever that businesses are aware of all the options available to them, so that they can become more productive and grow.”
The FSB’s research also showed that small business confidence is up nationwide despite rising costs and the Brexit vote, but firms in the capital are more cagey about the future.
Across the country, confidence in the last quarter bounced back to the level reported before the EU referendum campaign at +8.5, up from -2.9 in the third quarter.
Despite the recovery in confidence, most small firms surveyed by the trade body said that this was not being fed through to profits, with profitability dropping for the second quarter in a row.
There was an increase in the number of firms citing the exchange rate as the main cause of cost inflation, currently at 28 per cent, compared to just 5.4 per cent a year earlier, as the pound remains at consistently lower levels against other major currencies.
The share of small businesses aspiring to grow over the next 12 months has also slipped, with 37.5 per cent expected to remain the same size, up from 27.4 per cent in the second quarter.
Mike Cherry, national chairman of the FSB, said: “The current economic outlook seems brighter, and UK small businesses are ambitious and want to make the most of it. Small exporters continue their strong rise, as UK goods and services become more competitive overseas and small businesses go out to find new markets and new customers.
“Despite the overall positive picture, our members still face many challenges as rising costs squeeze margins even further. The falling pound is driving up the price of imports and rising oil prices are being reflected in higher fuel costs. These inflationary pressures and price competition are hitting the bottom line hard with the majority of small firms seeing their profits continue to fall.”
He warned that members need to be ready to act if trading conditions deteriorate as policymakers prepare for Brexit.
In contrast, the level of confidence in London fell to -3 from +25 at the same time last year.
According to the FSB’s London Small Business Index, 63 per cent of businesses in the capital said they have seen an overall increase in the cost of running their business operations in the past quarter, compared with five per cent who have seen a decrease.
44 per cent of businesses said gross profits had decreased in the past three months, compared with 27 per cent who said there had been an increase.
The number of firms in London seeing the value of their exports increase fell from 61 per cent to 13 per cent year-on-year.
Despite the lack of confidence, respondents in the capital said credit was cheaper and more readily available than ever before, with 63 per cent of credit applications being accepted in the previous quarter. 42 per cent expect wage growth to be above two per cent per cent in the next twelve months, compared to 53 per cent who were asked the same question at the start of 2016.