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Small Firms Want To Grow But They Need Money And Skills To Do It

By June 30, 2014 No Comments

Small companies are gaining in confidence, are keen to invest in their businesses, and have great plans for growth. But a serious lack of employee skills – and poor access to funding – are dampening their ambitions. So say the latest findings from the Federation of Small Businesses’ (FSB) regular Voice of Small Business survey. But SMEs are fighting back by being more imaginative in where they seek finance. And experts insist that they also have the power to tackle talent shortages by influencing how young people are trained, and nurturing their own bespoke workforce.

That businesses want to grow comes as no surprise to us here at Boost Capital. It’s a message that chimes with research we conducted at the beginning of the year, revealing a similar sense of optimism among small business owners, as illustrated in the infographic below:

SME Outlook 2014

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More than a quarter of bosses we talked to planned to secure funding for their enterprise during 2014, while a third said that growth and expansion were the most important goals for the year ahead. Hope was particularly strong among businesses in the North East, with eight out of ten in that region harbouring immediate plans for expansion.

But the issue of being able to find qualified and experienced people to bring about this business boom is a very real one for many small firms. The FSB study showed that:

  • One in three UK SMEs complains that poor skills are slowing their business’s development.
  • Construction and computer services firms are particularly badly affected.
  • More than one in ten companies still plans to increase their headcount, despite the paucity of skills available. Almost 60 per cent expect to grow rapidly or, at least, moderately in the year ahead, and realise they need the staff to achieve this.

Growing your own skills.

Firms in less skill-intensive industries, such as retail, hospitality and leisure, were less likely to complain about the calibre of employees, but the need for properly skilled members of staff is still a clear one for companies across all sectors. The FSB recommends that SMEs take on apprentices, and that they actively engage with local education providers to help them create the type of training for young people that businesses really need. The group insists that small companies should have a say in how their future employees are developed, helping to create recruits who are ‘work ready’ and embedding employability skills from an early age.

A desire to invest.

Business owners are keen to address these labour issues, as they know that they have the potential to affect their growth ambitions. And it’s clear that SMEs are hungry to grow and expand their operations. A quarter of firms plans to increase capital investment in the next 12 months, the FSB found, a reflection of great expectations for the near future. Companies are anticipating increased demand for their goods and services in the coming months as the economic outlook improves, and they sensibly realise the need for the money and manpower to meet this swell in business.

Struggling for finance.

But when it comes to funding growth, SMEs still face a mixed picture. Our research found that about 30 per cent of small firms believe access to finance is their biggest business challenge in 2014. And those in the North West are particularly badly affected. The FSB data says that businesses in this region express the least optimism, and our study showed they were both the most likely to have had the most difficulty obtaining bank finance, and were also the most inclined to say that they felt let down by their bank. A huge 72 per cent of North West-based firms expressed disappointment of this kind. Small companies in Yorkshire and Humberside were not far behind, with 57 per cent saying that their banks had let them down. Yet, Northern firms also demonstrated some of the greatest hunger for growth, despite this struggle for capital to make their professional dreams a reality.

Finding alternatives.

The good news is that small enterprises are increasingly likely to take their fate into their own hands, and are looking to alternative finance providers when their bank says no. The FSB research reinforced the message that credit availability was limited, with more than six out of ten saying it was poor or very poor, further restricting businesses’ ability to grow. Just over 16 per cent of firms surveyed applied for finance from the high street banks in the last three months, almost four per cent down from a year earlier. But the study suggested that these falling numbers were partially due to SMEs seeking finance from sources other than the main banking institutions, presumably having learned the hard way in the past that the banks were not necessarily the answer to their financial problems. And where are businesses going for this much-needed growth capital? The Boost findings showed that 30 per cent would lean on their overdraft if they can’t find money elsewhere, while 27 per cent would consider taking out an unsecured loan. Overall, more firms are realising there’s a world of potential funding outside the conventional banking system. In May this year, for the first time ever more than £1 billion was secured for SMEs in Britain by independent brokers, according to the National Association of Commercial Finance Brokers, so this trend for alternative finance looks set to continue among small firms.

Bright days ahead.

We think it’s great news that firms are feeling more buoyant and hopeful for the future. That the FSB has recorded the highest level of confidence among SMEs since their quarterly index was launched four years ago is a tremendous sign for the British business landscape. But good will and optimism are not enough to realise real growth. Firms need greater access to funding to put their plans for expansion into practice. They require bright, motivated and properly trained staff to take their ideas off the page and make them a commercial reality. And they must also take responsibility themselves for communicating with the authorities what they need from the workers of tomorrow, as well as growing their own workforce within their enterprise. It’s going to take effort on the part of policy makers, lenders, the educational establishment, and businesses themselves. But if the key ingredients can be put in place to create a fertile and supportive business environment, the future will, indeed, be a bright one for small firms in the UK.

Speak to a member of our business loans team on 0800 138 9080

More businesses than ever before are looking to Boost Capital for their business financing needs. To learn more about how our UK small business loans work or to explore the business financing options that are available to you, contact us today!
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