Limited companies becoming profitable

Thursday 28 August 2014

Limited companies are starting to feel the benefits of the economic recovery as more than three quarters of small and medium-sized enterprises (SMEs) say that they are becoming profitable.

This is according to the SME Finance Monitor from BDRC Continental for the second quarter of 2014. The report said 76 per cent of SMEs found that they were profitable during this three month period, which is up from 69 per cent in the previous year.

Economic conditions are becoming less of a problem for SMEs looking to achieve growth as only 15 per cent said that this is a concern for them.

Credit balances are improving too, and fewer SMEs are finding that they have to turn to their personal finances to keep their business venture going. Only 15 per cent had put personal funds into their business.

However, SMEs are still facing trouble in terms of gaining access to finance. In fact, a number of businesses are turning away from traditional forms of funding and are looking to other methods to support their businesses.

Indeed, this has been a troubling area for businesses ever since the financial crisis. A number of banks were reluctant to lend to SMEs as they did not want to take on any more risk.

There have been stimulus programmes from the Bank of England and the Treasury to try to encourage banks to grant loans to SMEs, such as the Funding for Lending scheme and the record low 0.5 per cent base rate. However, lending to SMEs has continued to decline.

One is nine of the companies that took part in the survey that said they have growth intentions over the next year explained that access to finance could be a big problem for their aspirations.

What's more, one third of SMEs who sought business loans were rejected by banks and were not able to get the money they needed from other sources.

This figure could have been worse, however one in ten business managed to gain finances from alternative funders.

Four out of ten SMEs said that they were permanently not in search of external finance, while 78 per cent said they are feeling comfortable while they do not go in search of funds.

Speaking about the results of the SME Monitor, chief executive of the Forum of Private Business Phil Orford MBE said: "The latest figures from the survey show a continued fall in the number of businesses that see the economy as a barrier to running their business, but an ongoing decline in small firms looking to outside sources for future funding."

"In the same quarter of 2011, 51 per cent of small businesses used external finance and 30 per cent were seen as ‘permanent non-borrowers’. Today’s figures show almost two thirds of SMEs do not use external finance, and the number of ‘permanent non-borrowers’ has risen to 40 per cent. This highlights a continuing reversal in the number of businesses looking to the banks."


By Victoria McDonnell

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