Search
Close this search box.

Businesses resorting to "inappropriate finance" to fund future growth

Businesses resorting to "inappropriate finance" to fund future growth

Despite further signs of economic recovery, the latest information from the BDRC Finance Monitor for SME lending released today (29th November 2013) highlights the Forum of Private Business’s continuing concern that confidence in the banking industry remains an obstacle to supporting economic growth.

Whilst figures for the third quarter show no change in the use of traditional banking products, with only 1 in 3 small businesses reporting use of these methods, the report indicates a continued rise in the use of credit cards from 15 percent in the fourth quarter of 2012 to 20 percent in the third quarter of this year. This is in contrast to overdraft use for the same period, which has decreased from 20 percent to 16 percent despite falls in associated costs. The findings could suggest that business owners are using credit cards as a short-term solution to cash flow issues and to sidestep overdraft charges. However, based on factors such as anecdotal evidence from members, the reduced cost of overdrafts and continued issues around late payment, this worryingly could indicate that an increasing number of struggling businesses are racking up an unsustainable amount of debt. While there is evidence that the banks have taken steps to resolve this through proactivity in pre-authorisation of overdrafts, this does not necessarily help those firms which are becoming increasingly reliant on credit cards for their short-term survival after five years of difficult economic conditions.

Confidence levels also suggest that businesses continue to see the trading environment as extremely challenging. After the most positive business sentiment since its inception, with 51 percent of small firms looking to grow their businesses in the next 12 months, confidence has dropped to 47 percent with 36 percent of businesses reporting growth over the last 12 months compared to 44 percent in the previous quarter. The report also highlights a fall in the proportion of businesses injecting personal funds from 38 percent from 42 percent in the last quarter, as businesses have reverted to using their profits as opposed to personal assets or bank funding to finance future growth. Use of alternative methods of finance has also dropped marginally from a high point of 21 percent last quarter. Commenting on the report findings, Phil Orford MBE, Chief Executive of the Forum of Private Business, said:

“This latest data further pinpoints the urgent need for the banks to convince the small business community that they are here to support businesses looking to grow and employ, which has not been helped by recent press coverage. Without clear support and positive action from the banks, this could remain a continuing obstacle and threat recovery in 2014. “When it comes to business finance, it is vital that banks take further steps to be more proactive in providing the liquidity businesses need rather than seeing further increases in the use of credit card finance.”

Read more

Latest News

Read More

Rise in recruitment fraud must urgently be checked

28 March 2024

Newsletter

Receive the latest HR news and strategic content

Please note, as per the GDPR Legislation, we need to ensure you are ‘Opted In’ to receive updates from ‘theHRDIRECTOR’. We will NEVER sell, rent, share or give away your data to third parties. We only use it to send information about our products and updates within the HR space To see our Privacy Policy – click here

Latest HR Jobs

University of Warwick – WMGSalary: £23,144 to £25,138 per annum

The Open University – People ServicesSalary: £57,696 to £64,914 + up to £8,000 per annum MRP supplement*

Cardiff UniversitySalary: Competitive

University of Oxford – Oxford Department of International DevelopmentSalary: £28,759 to £33,966 (Grade 5)

Read the latest digital issue of theHRDIRECTOR for FREE

Read the latest digital issue of theHRDIRECTOR for FREE