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We are sharing this update from ACCA, our professional body, for the interest of clients and contacts. The content is (c) ACCA

Approvals are also at a record low, according to the findings of a new poll of SMEs by the Federation of Small Businesses

The latest quarterly Small Business Index published by the Federation of Small Businesses (FSB) shows successful finance applications plummeting to the lowest level on record. The FSB is warning that banks “pulling up the drawbridge” to small firms will further stifle economic growth.

The latest Bank of England figures from March 2022 also show that the annual growth rate of lending to SMEs is at a record low, despite small firms making net debt repayments of close to £1bn in March alone. Lending to big corporates, by contrast, has increased significantly since the start of the year.

The FSB poll of 1,200 small business leaders has revealed significant problems with late payment and supply chain issues. The challenges are so serious that 11% of small firms plan to close, sell or downsize their business over the coming year, equating to more than half a million businesses.

The key findings show that:

  • Only 9% of small firms applied for finance in Q1 2022, the lowest proportion since SBI records began;
  • 43% saw their applications approved – also a record low;
  • Just 19% described the availability of credit as “good” – the lowest point since 2016.

Of the firms that did secure finance, four in ten (42%) plan to use credit to manage cashflow, considerably more than the numbers planning to use funds for equipment (21%), expansion (19%) or recruitment (4%).

It seems that cashflow issues are being fuelled by late payment, with 61% of small firms saying they were impacted by late payment of invoices over the first quarter of this year and 26% saying the propensity for late payment is growing.

Of those that applied for finance, 61% sought traditional overdraft and/or loan products. A quarter (25%) applied for asset-based finance, such as invoice finance, with smaller numbers seeking funds through peer-to-peer platforms (7%) or crowdfunding (5%).