More firms see reasons for optimism

Jan 19 2010 by Karen Dent, The Journal

SMALL firms in the region are more optimistic about the year ahead but say they are still facing problems accessing finance to develop their businesses.

Eight out of 10 small firms surveyed in the North East and Yorkshire said they expect to maintain or increase turnover in the first half of the year, up from 68% a year ago.

But most said they expected to wait at least 18 months to two years before the UK economy had fully recovered from the recession.

The survey respondents pointed to the downward trend in unemployment as the strongest sign that the economy was finally starting to improve.

The figures come from specialist business insurer QBE, which also found that respondents were still concerned that a lack of credit from the banks was holding back the general economic recovery.

Almost three-quarters (72%) of the small businesses surveyed said that they remained worried about access to finance. The majority of those that planned to invest in their business this year said they would provide the funds themselves.

More than half of small firms in the region said they were aiming to grow their business during 2010 – the highest regional figure and well above the national average of 38%.

And the 53% of Northern small firms looking to expand was well ahead of the number in London, where just 29% said they intended to make an investment in their enterprise during the first half of this year.

The top investment priority among the region’s SMEs was computer equipment, followed by increasing staff numbers after the widespread reductions seen during the height of the downturn. However, just 6% said they would turn to their bank to fund their investments.

Pat Wood, commercial manager of QBE’s Leeds office, said: “Despite continued difficulties in the business environment, the region’s SMEs are performing well and their optimistic forecasts for the coming year are encouraging.

“While conditions are uncertain, it is unsurprising that their focus is on staying afloat rather than expanding. As confidence improves we have to hope that sufficient prudent lending will re-emerge, to assist the North East’s businesses make the most of the upturn.”

Meanwhile, separate research suggests that more small firms have turned to overdrafts rather than business loans to keep afloat during the recession.

Just 21% of the small businesses quizzed for the survey by CreditPal said that they had applied for a bank loan in the last two years.

Those with a turnover between £250,000 and £500,000 were most likely to turn to their overdraft facility instead of attempting to access finance.