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The UK Economic Recovery and SME Businesses

Written by Jon Cooper

Last week, speaking at The Telegraph’s Festival of Business in London, the UK Chancellor of the Exchequer, George Osborne, gave one of his most confident economic assessments saying “We are on the path to prosperity, we’ve got the fundamentals right and we’ve got an economic plan that is delivering what very many countries would crave, which is certainty, predictability and competitiveness.”

The SME sector is a vital part of the recovery and the Baker Tilly Your Business Outlook 2014, which surveyed 750 small and mid-sized enterprises, showed indications that the recovery will be far from smooth.

The underlying level of risk aversion remains remarkably high and this is suppressing the levels of investment, expansion and employment.

As has been well documented, over the last few years it has been incredibly difficult for SME businesses to borrow from High Street banks.  This has caused the evolution of more modern methods of funding such as crowd funding and peer-to-peer finance.  Indeed, one of the leading peer-to-peer sites, Funding Circle, is partly underwritten by the government.

Although these alternatives often offer finance at a lower interest rate than High Street banks, according to the survey, less than one in four companies would consider them.

Broadly similar levels of only one in five respondents indicated that there were planning to increase staff numbers, capital expenditure, R&D and sales and marketing spend in the next year.

The lack of communication of the available government support to the SME sector and the complexity in the application process for the various schemes, resulted in almost nine in ten companies not planning to make use of them.

Whilst the heartening conclusion of the survey was that the over-whelming majority of respondents were satisfied with the current position of their business, there remains an underlying lack of confidence that is holding back investment and the development of new markets.

This reluctance of companies to pursue bolder initiatives tends to suggest that the recovery will be slower and more uneven than the latest forecasts.

It will be interesting to see whether the Chancellor uses his Autumn Statement on 5th December to unveil new policies to stimulate business confidence in the SME sector.

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