Looking back on 2014, it was a mixed year for SMEs. There were signs of improvement in the economy, and some regulation changes worked in small firms’ favour. Technology continued to open up opportunities for many entrepreneurs. And the weather had a few surprises in store. But a lack of finance continued to put a major blight on many smaller enterprises’ plans for growth.
Come rain – or shine
January and February were very wet months, and many businesses were hit by severe floods, particularly in the South West of England. Up to £831 million was lost by small firms in affected areas, according to the Federation of Small Businesses (FSB), and there were huge implications for companies’ operations, and future insurance costs.
The elements took a turn for the better in the summer months, when Britain experienced weeks of sunshine, and low levels of rain. All in all, some predict 2014 will be the hottest year in Britain for three centuries. Oddly, the balmy conditions didn’t benefit retailers – they reported slow trade through the warmer weather. But hospitality firms and pubs saw a boost to sales as everyone went out to soak up the rare summer rays.
Show me the money
Despite claims from the four high street banks that they’re open for SME business, lending to small firms was down this year, according to the Bank of England’s Trends in Lending data. In particular, the Funding for Lending scheme (FLS) came in for criticism. The banks drew £7.2 billion from the initiative in the first three quarters of 2014, yet their net lending to smaller firms collapsed by £8.9 billion. In the Autumn Statement, the scheme’s deadline was extended for another year to early 2016, as we wrote at the time. However, many SMEs expressed dismay at the way FLS operates – 86 per cent of those using one alternative funder said the scheme didn’t work in their interests.
The Coalition Government tried other ways of tackling the lack of liquidity for SMEs in 2014. One was getting the British Business Bank up and running, boosting its coffers by a further £400 million later in the year. This new body, which works with financial institutions to improve the supply of private capital to SMEs by providing part-guarantees on loans, launched in late 2013, but became fully operational in the last 12 months. Its success has yet to be seen.
Red tape challenges
Businesses’ ongoing battle with red tape continued in 2014, though a few announcements gave SMEs reason for cheer. A review of the unpopular business rates system was revealed in the Autumn Statement, as was an extension of Small Business Rates Relief to April 2016, plus that a further 190,000 firms could be exempted from much of their rates bill.
Less welcome were new rules affecting sick pay, which came into effect in April, increasing the rate of statutory sick pay, and removing the right for firms to reclaim sickness costs past a certain point. We outlined the extension from June of the right to request flexible working to any employee with 26 weeks’ service with a company. New laws allowing mothers and fathers to share parental leave were also unveiled, though they come onto the statute books in April 2015, as explained at the time.
One of the biggest legislative headaches of the year was the gradual introduction of new pensions auto-enrolment rules. From April, Britain’s small and medium businesses began to come under the legislation, which requires employers to enrol staff in a pension scheme if individuals aren’t already members. Firms with up to 249 members of staff started to have to comply with the laws in 2014. Employers with fewer than 50 members of staff will find themselves mostly tackling the extra pensions administration next year.
Scotland the brave – and Brazilian heartbreak
Probably the biggest event of the year for those living in the United Kingdom was the Scottish referendum on independence in September. We talked about this controversial vote for some months in advance, as business owners north and south of the border debated what Scotland leaving the union would mean for the countries concerned, and, specifically, SMEs. As it happened, Scots opted to continue to stand alongside its neighbours, but greater powers were promised to Edinburgh. Details of how this will work in practice are expected early in 2015.
Scotland was also in the spotlight when Glasgow hosted the Commonwealth Games in July, a glittering sporting event used as an opportunity to showcase Scottish enterprise, and promote exporting to firms in Scotland, as we discussed in the summer.
Elsewhere, the biggest sports story of 2014 – and a huge sales boost for retailers, pubs, bars, and many other small companies – was the World Cup in Brazil. Though the German team won the trophy, Brazil was beaten, and England was knocked out in the early stages of the tournament, UK firms that could take advantage of the football fever saw a brisk trade while the matches took place. We reported that experts calculated the event brought in an extra £2 billion to the UK economy, with many SMEs being great beneficiaries.
Renewed growth – and reasons for optimism
Things were looking up in the UK economy this year, with clear signs of growth, though not to levels predicted by the Chancellor, George Osborne. Nevertheless, Britain’s SMEs expressed a desire to grow after several years of caution – almost half of smaller firms plan to expand in 2015, according to recent research by the British Business Bank. Small companies were also feeling upbeat about hiring, with almost a fifth of smaller employers saying that they’d hired more staff in the last quarter of 2014, the FSB announced. Businesses were also looking further afield for opportunities – six out of ten SMEs plan to be exporting by 2016, a survey by YouGov revealed.
But, for all their grand ambitions, small companies are being held back by a lack of finance, Boost Capital’s own research found. A paucity of funding was hindering firms in many industry sectors, with manufacturers, construction firms, retailers, and hospitality businesses all contributing less to Gross Domestic Product in recent years than in 2007.
Alternative finance in the limelight
One ray of hope for SMEs in 2014 was the continued growth of the alternative finance industry. Greater numbers of ambitious firms got the word that funding is available for small companies away from the main clearing banks, and more business owners tapped into this well of opportunity via short-term lenders, asset finance, and peer-to-peer platforms in the last 12 months. The National Association of Commercial Finance Brokers (NACFB) reported a record month in September, with £1.25 billion worth of capital arranged for small businesses. Plus, the NACFB held its first ever Love Lending Week, supported by Boost Capital.
Alternative lenders even got a name check from the politicians this year. George Osborne announced in August that enterprises frustrated in their efforts to borrow from the main banks will have to be referred to alternative lenders in future, a move we applauded at the time. Action is needed on this promise as soon as possible to allow more small companies to gain access to the funding we have, and they so desperately need.
The recipe of improved confidence among business owners, and greater awareness of alternative sources of borrowing should put SMEs on a good footing to start 2015. And we at Boost Capital look forward to seeing what the 12 months ahead have in store both for us, and our small business customers.