Smaller firms struggled to access finance in the first quarter, while over a tenth (12 per cent) that applied for funds did so through peer-to-peer lending platforms or via crowdfunding.
The Federation of Small Businesses’ (FSB) Small Business Index (SBI) found that fewer than one in 10 (nine per cent) small firms applied for finance in the first quarter, the lowest proportion since the SBI records began.
The number of approved applications reached a record low of 43 per cent.
Of those that applied for finance, seven per cent did so through P2P lending platforms and five per cent through crowdfunding. The majority (61 per cent) sought traditional overdraft or loan products and a quarter (25 per cent) applied for asset-based finance, such as invoice finance.
Out of the few firms that did manage to secure finance, 42 per cent plan to use it to manage cashflow, while 21 per cent said they would use the funds for equipment updates (21 per cent), 19 per cent intend to expand, and four per cent want to recruit.
Many smaller businesses were seeking finance to help with cashflow challenges. The majority (61 per cent) of small firms said they were impacted by the late payment of invoices over the first quarter of this year, and 26 per cent said the propensity for is growing.
One in 10 (11 per cent) of small firms plan to close, sell or downsize their business over the coming year, equating to more than half a million businesses.
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“Lenders pulling up the drawbridge for small firms will threaten our already faltering economic recovery,” said Martin McTague, national chair of the FSB.
“Businesses are born every day across the UK – many need funding to get off the ground, ensuring they reach a stage where they’re profitable and creating opportunities.
“A lot of those who’ve worked tirelessly to adapt, survive and thrive over lockdowns need finance too, empowering them to take their firms to the next level, driving our economic recovery and the transition to net zero in the process.
“A big chunk of what little finance is being accessed is being used to manage cashflow challenges as our late payment crisis worsens, rather than for much-needed investment and innovation.”
McTague said the government should accelerate delivery of the FSB’s proposal to make audit committees directly responsible for supply chain practice to address this “worrying trend”.
“Culture change is what’s needed here – lenders taking an objective approach to small business finance and big corporates putting best supply chain practice at the heart of environmental, social and governance programmes,” he said.
“The result would be win-win: strength in corporate supply chains and a thriving small business community driving economic growth from the ground up.”