Loan applications reveal strain of late payments for smaller firms

TWO OUT of five small businesses making finance applications in recent months used the money to manage cashflow rather than invest in their firms, a new study suggests.

The Federation of Small Businesses (FSB) said fewer than one in four used finance to update equipment, and only a minority spent the funds on expanding their business or recruitment. Its survey of more than 1,000 small firms also suggested that the number applying for external finance fell from 15 per cent to 13 per cent last year.

The data followed previous research that late payment of bills was leading to the closure of 50,000 small businesses a year, with outstanding late payments totalling more than £23bn.

The FSB’s chairman Mike Cherry said: “If this Government wants to leave a lasting legacy amongst small businesses, it has to make ending the UK’s late payment crisis a top priority.

“It’s troubling that so many external finance applications are driven by cashflow concerns. This really shouldn’t be the case – you wouldn’t dream of doing your weekly shop and telling the cashier that you’ll pay for it in 100 days, but corporations take this approach to small businesses in droves.

“We fought hard for a package of late payment reforms under the last administration. Frustratingly, it was put on ice due to the general election. We’ll be working closely with the new small business commissioner to resurrect it.”

Firms in the West Midlands were most likely to seek finance, with one in four making an application, while those in Scotland (13 per cent), the North- East (six per cent) and North-West (five per cent) less likely to do so.