FPB says Government needs to help small business grow as Britain heads out of recession

31 July 2009

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The FPB has urged the Government to help small firms grow when Britain's economy begins to pick up.

The FPB believes that struggling smaller businesses could be unable to expand and cope with an upturn in trading as the country heads out of recession.

As a result, it is arguing that the Government needs to ensure both private and public funding is available to help small and medium-sized enterprises (SMEs) develop in the event of an economic upturn.

The FPB made the comments in a submission to the Rowlands Growth Capital Review, which is asking whether state intervention will be needed to help SMEs access the capital they need after the recession ends.

The Rowlands Review is being led by venture capital expert Christopher Rowlands and is investigating whether intervention, such as a modern version of the Industrial and Commercial Finance Corporation, could help to enhance long-term growth among smaller businesses in the near future.

A lack of finance has been one of the main problems facing FPB members during the recession, with many reporting that their banks are either unwilling to lend, or are doing so at prohibitive rates of interest.

The problem was this week highlighted by Chancellor Alistair Darling and is often compounded by late payment practices employed by larger organisations. The FPB is warning it could leave small businesses unable to cope with an increase in orders for their services or products as the economy improves.

Commenting on the situation, the National Chairman of the FPB, Noel Guilford, said: "Small firms are finding access to finance a huge problem and the smallest firms are finding it almost impossible to raise bank finance.

"This is a problem that will get worse as the economy climbs out of recession. It is a fact that more small firms go out of business coming out of a recession that going in. "Most small firms have cut costs, including owners' remuneration, reduced their working capital needs and eliminated capital expenditure. There is no more they can cut.

"As demand increases they will take on more staff and sell more on credit, increasing their working capital needs. The demand for credit will increase but unless banks can respond, businesses will run out of cash to pay suppliers and staff."

In its response to the Rowlands Review, the FPB said that there was a ‘significant demand' for longer-term finance to be provided to SMEs. The submission argued that the project should not rely on either public or private funds but that there should be a holistic approach to solving the problem.

The FPB's other main points made in the submission were:

- Financial institutions should come up with long-term investment options other than venture capital.

- In the current climate, funding should be focused on start-ups and to enable established businesses to create new products and services. Money should also be channelled to pay for rapid expansion fuelled by market demand.

- The funding criteria for businesses should be made more flexible. At levels below £100,000, more financial incentives should be provided to investors to fund business ventures for the long term. Investments of between £100,000 and £500,000 – the level of investment required by the majority of small businesses – should be increased and restrictions on lending reduced.

The Rowlands Review is due to report back in the autumn and its recommendations are set to be included in the forthcoming Pre-Budget Report.

The official closing date for submissions has now closed but any FPB members who have comments they would like to add can contact FPB Research Projects Manager Thomas Parry on 01565 626015. For more information on the Review, go to www.berr.gov.uk/files/file51817.doc

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