Firms in ‘survival mode’ with 1 in 4 afraid to invest

MORE than a quarter (27 per cent) of small and medium enterprises do not plan to invest at all over the next 12 months and are in ‘survival mode’, according to new research.

Of business owners surveyed, 57 per cent had not sought any external finance in the past year, with 41 per cent using existing overdraft facilities and more than 34 per cent investing personal funds into their firm.

The study, from Hitachi Capital Invoice Finance, found that of those who invested their own money, 19 per cent had re-mortgaged property, potentially endangering their own financial health.

More than half of SME owners were also concerned that Brexit could impede their access to finance, with 59 per cent predicting that it would be more difficult to obtain it in future.

Another area of concern was an over-reliance on individual clients, with 17 per cent of firms saying that a single, large client was responsible for more than half of the company’s turnover. On average, SME owners said their biggest client was responsible for 26 per cent of revenue.

The study comes as Brexit has been blamed for a fall in crowdfunding deals. Researcher Beauhurst has revealed a record drop of 20 per cent in the third quarter of this year. It said Brexit had caused many highgrowth firms to pause and question access to markets, but also that investors appeared to be becoming more wary of early-stage firms.

And a report from The Company Warehouse has found that while 43 per cent of start-ups registered in the past 18 months were aware of crowdfunding, only 1.3 per cent had used it. The business consultancy studied firms that had formed and sole-trader businesses that had registered in the past 18 months. Eighty-two per cent had used selffunding to start up. Only 6.8 per cent had used bank funding, and despite 85 per cent being aware of the Government’s Start Up Loans scheme, only 4.5 per cent had used it.

Meanwhile, Professor Christian Sadler of Warwick Business School warned that Donald Trump winning the US presidential election was likely to make it more difficult for small firms in particular to export to the US.

He said that as well currency risks, ‘the other thing that they might face is additional trade barriers’. He said: ‘Trump has been quite explicit that he wants to protect the American market, that he wants to be tough on imports. A possible way around that is to start operating in the US, but that is harder for small businesses.’

Ben Hutt, chief executive of Search Party, a recruitment company targeting SMEs, said: ‘The uncertainty around Brexit will probably be somewhat painful in the UK, particularly for small businesses.

‘The constitutional uncertainty about what will happen is just lingering, which is bad for business. The US election adds another layer of uncertainty globally, so I wouldn’t be surprised if economically things slow down a bit.

‘It will make businesses choosier about who they hire and candidates choosier about which companies they work in.’

Separately, new data shows the UK leading Europe in the use of asset-based finance – money secured against a business’s assets – last year. The total value of UK business supported hit an all-time high of £335billion in 2015, an increase of 7.4 per cent from £312 billion in 2014.

According to the Asset Based Finance Association, which represents the industry in the UK and Republic of Ireland, asset-based finance in Europe reached a record £1.31 trillion in 2015, with the UK representing 26 per cent of the market, up from 24 per cent in 2014. France accounts for 17 p per cent.