Finance constraints dampen SME growth prospects

Research from the Forum of Private Business (FPB) found that 20% of smaller businesses in the sector are currently seeing an increase in orders and sales. Almost half expect to see an increase over the next 12 months and over a third expect to recruit new staff by September 2010. However, the survey found that 22% of small manufacturers are still currently reducing costs associated with staffing, either through redundancies and fewer working hours or through measures such as cutting perks and bonuses. A further 13% expect they will still be doing so in three months' time, and 9% think they will still be making cutbacks in six months. However only 4% of small businesses in manufacturing anticipate they will still be doing so by this time next year. By way of contrast, 5% are already taking on new staff, 13% expect to be doing so in six months' time and 39% envisage recruiting before September 2010. A further 47% expect to see an increase in sales and orders over the coming year, while 9% anticipate an upturn over the next three months and 15% expect to be doing more business in six months' time. While just 5% of survey respondents in the manufacturing sector said they are currently expanding their business, a healthy 39% said they expect to do so over the next 12 months. Nevertheless, the relative optimism of many small businesses in manufacturing is hampered by fears over accessing finance – a view that is expected to be echoed by the manufacturers' organization EEF in a report due out next week. Reflecting widespread dissatisfaction with the banks and major lenders, 78% of those surveyed said the terms and conditions of lending had worsened in 2009. None said it had improved and the remaining 22% simply stated there had been no change in the situation. Similarly, 66% of respondents said the cost of finance had increased while 52% reported seeing access to working capital worsen over the past year. When asked how the issue of finance for small businesses could be improved, the most popular solutions among small manufacturers was for the cost of credit to be reduced. FPB spokesman Phil McCabe said: "There has been much debate recently over the current condition of the manufacturing industry, with some research suggesting an upturn in its fortunes but other figures suggesting production has slowed. "Our figures appear to show that many smaller manufacturers are indeed seeing an increase in business and are generally optimistic for the future, which has got to be welcomed. However, the lack of available and affordable credit remains a huge problem for the sector and we would urge the banks and major lenders to do everything they can to help manufacturers at this crucial time."