News

December 20, 2011

One in ten firms consider closing as finance dries up

The inability to access bank finance forced one in ten small firms to consider closing over the last 12 months, research by asset lender Borro has found.

The Borro survey of 300 small-business owners in November this year, found that 11 per cent had considered shutting their business due to financial constraints which had hampered their potential for growth.

The poll also indicated that many small firms were still reluctant to approach their bank for finance for fear of being rejected. Only one in five had attempted to borrow money from their lender in the past year, while just one third of this group had succeeded in securing funds.

In contrast, 57 per cent had been forced to use personal funds to inject capital into their business, and 17 per cent had ended up borrowing money from friends or family.

The survey results come in the light of a series of measures announced by Chancellor George Osborne in his Autumn Statement aimed at improving access to credit for small firms.

New initiatives included an industry-led taskforce which will work with businesses to look at alternative funding sources to high street banks, which the Government hopes will open up borrowing options for small firms.

Business secretary Vince Cable said that the focus will be on debt and credit products, from corporate bonds to crowd funding. “I want to see as much competition in the market as possible and for businesses to have access to a wide range of finance sources,” he said.

The taskforce is expected to report back to Government on its findings ahead of the 2012 Budget Statement next March.

Business groups largely welcomed Osborne’s package of initiatives for small firms, with the Confederation of British Industry director-general John Cridland calling the taskforce “an opportunity to tackle the barriers that prevent most mid-sized businesses from looking beyond their bank for financial support.”

Other measures announced during the Autumn Statement included a £20 billion loan guarantee scheme aimed at cutting the cost of borrowing for small firms by 1 per cent, with finance to be underwritten by the Government, as well as an expansion of the Enterprise Finance Guarantee and an extra £1 billion in funding through a new Business Finance Partnership.

The British Chambers of Commerce (BCC) remained cautious about the Government’s plans. “We will be watching carefully to ensure that viable small and medium-sized companies can access the finance they need to grow,” said BCC director general John Longworth.

• Loan Guarantee Scheme will cut cost of borrowing for small firms, says Chancellor