As the economy shows signs of revival, the finances of many SMEs are looking far healthier. Moving into 2016, there is a general industry attitude of confidence as consumer spending continues to increase. According to Asset Finance International, a quarter of all SMEs are expecting to expand over the next year whilst just over half expect their business performance to remain the same. And over half of SMEs feel confident about the growing rate of the economy. 2016 may not signal a boom for SMEs, but predictions certainly suggest a year of recovery and promising business growth.
Over the past three years there has been an increasing amount of concern over the control of the so-called big-four, Barclays, HSBC, Lloyds and RBS. Combined they currently control 85% of small business accounts. This has been widely criticised, notably by the FSB chairman John Allen who has continually questioned the lack of choice available to SMEs from the UK’s largest banks. By highlighting this problem last year we saw far more SMEs seek out different forms of loans and feel confident in using alternatives to their bank overdraft. In 2015, the number of small businesses using bank loans fell dramatically – from 76% to 49%.
This trend is set to continue throughout 2016. According to a survey carried out by the Close Brothers, 1.35 million small businesses are expected to expand with 29% planning to access funds for investment. Of these, 30% were aiming to borrow up to £100,000 with a further 18% seeking a higher level of funding.
Given that interest rates have remained relatively stagnant over the past six years, it is unsurprising these are now set to increase. Industry debate now focuses on when rather than if the increase will be this year, and undoubtedly this will have an impact on small businesses. With repayments rising, only those businesses who have factored this into their business forecast will be fully prepared to adjust to the increased rates. Not only that but a rise in interest rates could well see a decrease in consumer spending power, which would undoubtedly have an impact upon the amount of money flowing to SMEs.
From April 2016, the living wage will increase from £6.70 per hour to £7.20 an hour. And it is businesses with the smallest number of staff who will feel this increase much more sharply According to the Resolution Foundation, those with fewer than 10 employees face an increase of 1.5% on their wage bill. It is predicted to have a significant impact upon businesses within the hospitality, retail and social care sectors where low pay is common and margins exceptionally tight. Their concern has been loudly voiced and the Chief Executive of Care England has stated that small businesses have simply not been given enough time to deal with the changes.
Whilst auto-enrolment has been welcomed by many, the pressure it places on small businesses (particularly those with just one employee) is seen as an unwelcome challenge. Setting up the Auto Enrolment scheme can incur costs that some companies simply cannot afford. Not only that, but the lower priced National Employment Savings Trust has a number of disadvantages and essentially means once you have subscribed to that pension it is impossible to move pots of money in and out. Added to this is the pressure of having to increase payroll to meet the financial demands of auto-enrolment and many businesses owners fear the impact this could have on their profits.