Government told SMEs need cash to emerge from recession

BUSINESS support and lobby group the Forum of Private Business (FPB) is urging 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.

It is arguing that the Government needs to ensure both private and public funding is available to help SMEs develop in the event of an economic upturn.

The organisation’s comments have been submitted to the Rowlands Growth Capital Review.

The review, which is being led by venture capital expert Christopher Rowlands, 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.

The FPB has already identified that a lack of finance has been one of the main problems faced by its members with many reporting that their banks are either unwilling to len, or are doing so at prohibitive rates of interest.

Noel Guilford, the National Chairman of the FPB, 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.”

He added: “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.”

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 that 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.

Finally that 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.