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Gloucestershire Business News

Small businesses forced to use credit to balance the books

Nearly four in ten (37 per cent) small businesses used credit to manage cashflow, rather than invest in their firms, according to new figures from the FSB.

Fewer than one in four (23 per cent) used finance to update equipment, while even smaller proportions used funds for expansion of their business (16 per cent) or recruitment (two per cent).

Previous FSB research shows that the UK late payment crisis leads to the closure of 50,000 small businesses a year at a cost of £2.5 billion to the economy. The latest figures from Pay.UK show that the balance of outstanding late payments almost doubled to £23.4 billion in 2019.

FSB National Chairman Mike Cherry said: "If this government wants to leave a lasting legacy amongst small businesses, it has to make ending the UK's late payment crisis a top priority.

"It's troubling that so many external finance applications are driven by cashflow concerns. This really shouldn't be the case - you wouldn't dream of doing your weekly shop and telling the cashier that you'll pay for it in 100 days, but corporations take this approach to small businesses in droves.

"The uncertainties facing big businesses over the past few years will have no doubt increased the temptation to use small firms as free credit lines. We need to put that attitude to bed, for good."

The new research shows that around one in eight (13 per cent) small firms made an application for external finance at the end of 2019, down from 15 per cent at the start of the year.

Major banks issued £18.5 billion of new term loans to smaller firms in the first three quarters of 2019, down from £18.8 billion in the same period during 2018, according to UK Finance. The British Business Bank was supporting £6.6 billion worth of small business finance stock as of March 2019.

Mike Cherry added: "The small business finance market is beset by both supply and demand challenges.

"On the one hand, you have a substantial share of successful small firms who could be growing more quickly if they accessed external finance, but are reluctant to do so. Lack of trust in financial services is an issue here, as are bank branch closures, which prevent small businesses from building in-person relationships with lenders. The general perception that borrowing is expensive - even when that's not the case a good deal of the time - is also a persistent challenge.

"And on the other, big lenders are often more cautious about lending to small business owners if they approach them in a professional rather than personal capacity.

"We need to see a concerted effort from all sides to make small firms aware of all their finance options."

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