SMALL businesses are continuing to look to the banks rather than alternative sources of finance when they need credit, despite experiencing ongoing problems in accessing extra money.
A study of financial issues facing the SME sector, carried out by the Forum of Private Business (FPB), found that an overwhelming 94% of those questioned considered improved access to finance as important or very important in restoring business confidence.
However, 43% said their cash flow has worsened in recent months, while working capital had declined for 41% and growth capital had deteriorated for 55%.
The main issue for more than half of those surveyed (54%) was rising costs, the same number as the FPB’s previous cash flow and finance panel survey, carried out last September.
And the number who are continuing to face problems because of late payment has increased by 8% to 33%.
FPB senior policy adviser Alex Jackman said: “While some firms are seeing improvements to cash flow, working capital and growth capital many more are seeing these deteriorate and are looking to the banks to provide the finance for growth in order to boost business confidence and drive economic recovery.
“Small business owners are likely to feel vindicated that the banks are being taken to task given the experiences they have had in recent years – but clearly mainstream lenders remain centrally important in their eyes.
“Entrepreneurs believe banks can do a lot better and are calling for improved levels of service, including more branches, faster and more transparent decision making and greater choice.”
The report found that 20% believed there was a lack of options when they were looking for finance, a rise of 16% on the previous study. The number facing problems in gaining any funding at all also shot up by 11% to 17% since last year’s research.
Mr Jackman said: “There is caution in some quarters over alternative forms of funding but the research suggests that, if these improvements are is not delivered, many entrepreneurs alienated by mainstream lenders are more than willing to vote with their feet and explore newer, more innovative financial services less dependent on automated risk criteria.
“There is an important role to be played by accountants and other financial advisers – including bank representatives – in guiding them in the direction of funding solutions that work for their businesses.
“Of course, reducing business costs and making inroads in tackling the huge problem of late payment would also improve the situation greatly.”
