Economic uncertainty has not dampened the prospects for the smallest businesses this year.

Thursday 7 March 2013

As the UK economy is beginning to take its first slow steps towards recovery, many businesses have not yet begun to see improvements in market conditions. While some industries are beginning to pick up, others are taking longer to get moving, partially as a result of difficulties in borrowing the necessary funds. For many sole traders, the beginning of 2013 has remained full of uncertainty.

The BoE recently reported that the Government’s Funding for Lending scheme (FLS) has failed to make any difference to the economy so far. Net lending actually fell by £2.4 billion in Q4 2012 compared to the previous quarter, in spite of the £14 billion in funding made available to banks so far. Although some, such as Barclays and Nationwide, did accept billions more applications, lending still dropped considerably in some financial institutions.

FLS works by making funds available to banks and building societies, with more and cheaper funding open to them depending on the amount they lend. Although the cost of funding for UK banks has fallen sharply as a result, the cash does not yet appear to be filtering down to businesses.

Business start-ups in particular are facing real problems, with a poll by Entrepreneur Country demonstrating less than an eighth of the entrepreneurs polled had benefited from a business bank loan. Nearly half had found themselves borrowing from their family and friends for the initial investment to strike out on their own.

Difficulty in finding finance, the study found, was the single largest discouraging factor for people who wanted to work for themselves.

Finding sources of investment is tough for every business at the moment, and the very smallest businesses are the most vulnerable to economic peaks and troughs. For freelance workers and contractors, however, this can also mean that valuable prospective clients are less inclined to seek out external expertise.

So, what are the prospects for small businesses?

Actually, they’re fairly positive.

BoE noted that it was too early to measure the full impact of the scheme, so it plans to reserve judgment on its success until a much later date. In the meantime, the report said, FLS appears to be working as expected - which could mean that although its effects have not been immediate, throughout the rest of this year and 2014 the scheme could yet benefit thousands of the smallest businesses.

Moreover, eight out of ten entrepreneurs are planning for growth or acquisition in 2013, 50 per cent of whom described themselves as ‘very optimistic’ about the coming year, according to a survey by Smith & Williamson. Two-fifths of these respondents also said that they were more open to the idea of borrowing than they had been three months previously.

Many of the industries that are already recovering are among those which make greatest use of freelance and contract workers. Oil and gas investment has just hit its highest level for 30 years, while telecommunications will be boosted by the expansion of 4G this spring.

IT skills remain among the most sought after for almost every type of business. Freelance workers in the marketing industry can also anticipate a strong year, after a Michael Page report predicted further growth across most of England. Though times may have been tough for the smallest businesses, there is light at the end of the tunnel yet.

By Victoria McDonnell

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