SMALL firms – that's 93% of companies in Scotland – need some comfort in times of economic stress but there is a growing view that the Government ought to be doing more to help to those at the sharp end of the banking crisis.
The intended benefits from the cut in interest rates and the bank bailout will take some time to filter down to the army of SMEs on which the country depends and small firms are worrying that it could be too little too late.
There is resentment th
at the banks are being rewarded for their incompetence, while business owners – the real hub of the economy – are being left to soldier on. And there's a deep feeling that action should have been taken to protect small businesses a long time ago, not hidden away in the £50bn funding announcement last week.
The challenges facing small businesses today are unprecedented. Fuel costs and energy bills have soared by 40% in the past 12 months and they fear the credit squeeze will tip them over the edge as their problems are overlooked.
Huge increases in bank charges as a result of the current lack of liquidity in the economy are the final straw. Bosses are understandably furious at banks suddenly demanding higher rates on loans and overdrafts.
According to the Federation of Small Businesses, 40% of businesses have seen their banking bills increase over the past year. While the base interest rate was at 5% the FSB says small businesses were paying up to 15% on their overdrafts.
Already this year more than 10,000 UK businesses have failed, a 17.5% increase on the first six months of 2007, and more than half of these were recorded in quarter two. We now face the highest number of failures since the dot.com bubble burst in 2002.
Not surprisingly the charity Business Debtline has reported a 57% increase in the number of small business owners calling for advice since the onset of the credit crunch a year ago.
Now that the Government has stepped in to shore up the banking system, the focus must shift to implementing policies that will support SMEs, the businesses at the grass roots of the economy, the ones we are relying on to trade us out of these difficult times. There is an urgent need to tackle the rises in fuel duty and energy costs while decreasing VAT on goods and services in key designated priority industries.
Offering relief of up to 50% on the rate bill for empty commercial properties would also help, together with sorting out the local authority planning system to ensure small businesses can make the necessary changes to their premises to make them flexible enough to work through the credit squeeze. Speeding up the process for planning requests and easing the regulations would make a huge difference.
As would slowing down the introduction of new regulations. New ones are expected on alcohol, tobacco, licensing, fire regulations and health and safety. In almost all cases, existing staff will need to cope with the extra workload.
Late payment is another area that could provide a quick fix for Government. Gordon Brown insisted that all Government contractors should be paid within 10 days and Alex Salmond was quick to follow suit. But extending this ruling to local authorities and quangos would quickly boost cash flow.
The Government also needs to appreciate that newer businesses haven't faced times like these before and don't have the experience to weather the storm. Firms need to be pointed towards such things as trade credit insurance; asking for payment – in full or in part – up front; and they should seek advice from experienced businessmen and women who have been through difficult times before.
Some believe the outcome of this global financial crisis will be that bad businesses are weeded out, resulting in good businesses surviving and becoming stronger.
But it could bring opportunities for all. While some parts of the economy are going down, others will be picking up. This is the time to seek out new ways of generating business, not necessarily by slashing marketing or advertising budgets, which is really no more than a shortstop knee-jerk reaction.
Firms should consider diversification, product or service extensions, new routes to market, or even new markets altogether.
The heads of small firms are calling for and end to the confusion surrounding the various business rate and tax relief schemes. Making access to funding easier – and in some cases applying the relief automatically – would be preferable.
Small Business Rates Relief, which gives businesses based in properties with low rateable values the opportunity to ease the burden of their rates, is a case in point. Around £200m of relief goes unclaimed every year, with less than half of the country's small businesses applying.
The Small Firms Tax Relief Scheme gives 175% relief on R&D-related activities. However, this scheme, which is one of the Government's main initiatives to help small firms through the economic slump, has been riddled with confusion around the deadline for claiming, and as a result has not been as successful as hoped.
There is some help at hand. The news was missed by many, but Gordon Brown made a bid to improve the flow of finance to small firms by agreeing with other European leaders to release a planned £12bn European Investment Bank fund, which Barclays and Alliance & Leicester will distribute in the UK.
This fund gives loans to banks and leasing companies to help provide finance to SMEs. But much may depend on the qualifying criteria and how quickly the loans can be processed. And whether it too will be too little too late.
