Small businesses using credit to balance the books

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Small businesses are applying for loans to manage their cashflow instead of investing in their operations after late payments almost doubled to £23 billion last year.

New research from the Federation of Small Businesses has revealed that almost 40 per cent that made successful finance applications in the last quarter of 2019 used the money to manage their day-to-day spending.

Now the organisation has called on the government to act immediately to address the problem of late payment, pointing out that it forces 50,000 small companies to close every year.

It also showed that fewer than one in four (23 per cent) used finance to update equipment, while even smaller proportions used funds for business expansion (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.

More than half of small business owners say cashflow concerns are giving them “sleepless nights”, according to a poll by Close Brothers Asset Finance.

Neil Davies, chief executive, said: “In the 10 years plus we’ve been conducting our research, cashflow has consistently rated as firms’ primary concern. This spans sectors, regions and size and is not a problem purely for smaller firms.”

“Given these results, it should come as no surprise that business owners are struggling with the issue, particularly in light of the fact that three out of every five SMEs polled have said maintaining cashflow is a problem,” he added.

Cashflow fluctuates seasonally for half of UK businesses with this being particularly acute in the West Midlands, where the figure rises to 65 per cent.

“Many sectors are seasonal, from agriculture to holiday lets, which is why cashflow forecast is an essential took for businesses planning because it helps business owners to understand where cash is needed and where pinch points might happen,” Davies said.

Figures obtained for the research came from a Kanter research survey which spoke to more than 900 SME owners the UK and Ireland.