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Memorandum submitted by the Federation of Small Businesses (EE 23)
Summary · The majority of FSB members are based in urban areas and engaged in either retailing (16%), business services (14%) or manufacturing (12%) · 65% of businesses employed up to four people · The impact of the economic downturn on FSB members grew steadily between the middle and end of 2008 · By April 2009 the number of FSB members reporting that they were seeing a decline in trade had decreased from 60% to 47% · 51% of members had ether reduced staff levels or were considering doing so · 48% of members had either reduced or were considering reducing staff working hours · 50% of members were planning to freeze staff recruitment · 39% reported an increase in payment times-only 11% had seen a reduction · 26% have seen an increase in the cost of existing finance and 28% an increase in the cost of new credit · The Government's Enterprise Finance Guarantee appears to have had little impact · The finance schemes run by EEDA are aimed at high growth businesses only and will have little benefit to many small businesses in the Region · We welcome the work of Business Link East and local authorities in providing easily accessible advice and support · We welcome the Bank of Essex provided by Essex County Council and Santander · Our own "Beat The Recession" seminars in · We question the effectiveness of the Regional Economic Forum · Should this be the time to put on hold the East of England Plan and Regional Economic Strategy?
1. Background a) The
Federation of Small Businesses is the
b) Our members run a wide variety of businesses ranging from small retailers through to manufacturing. The biggest sectors are retailing (16%), business services (14%), manufacturing (12%), construction and related activities (8.5%) and transport and related activities (6%).
c) Most of our members' businesses are based in urban areas, either in a town centre (17%), business park (23%) or in a suburban residential area (21%). However a significant number are based in rural areas, either in a village (16%) or on a farm (15%).
d) The findings of our biennial survey Lifting the Barriers to Growth in UK Small Businesses 2008" found that in the previous two years the majority of members had planned to grow their business either moderately (up to 20%) or rapidly (over 20% growth).
e) The same survey also revealed that nearly 65% were employing 1 to 4 full time employees and 47% employed 1 to 4 part time employees. A further 19% were employing 5 to 19 employees and 5% had twenty or more full time employees.
2. The East of a) We note that Insight East's monthly economic outlook for April 2009 showed that business confidence in the Region remained weak, albeit less so than at the end of 2008.
b) Sectors particularly badly hit are manufacturing and construction, both of which are important areas for small and medium sized businesses.
c) Although many of the businesses identified by Insight East are large organisations reductions in spending by them, making staff redundant or considering short time working, will undoubtedly have an impact on many small businesses through cuts to supply chains or simply by virtue of reduced spending power available to their employees or former employees.
d) The impact of the downturn on FSB members in the Region has steadily grown. In August 2008 46% of members had reported a downturn in trade over the previous two months, by October this had grown to 54% and rose to 60% in December 2008.
e) However, it is possible that the economy is beginning to even out as in April 2009 our membership survey reported that the number of members reporting a decrease in trade over the past two months had reduced to 47%.
f) Notwithstanding that, we have seen members reporting that they plan to either reduce or consider reducing staff levels (51%) or reduce staff working hours (48%). More than half of members have also reported that they plan to reduce future staff recruitment.
g) Payment times can have a major impact on the survival of small businesses and we have seen a number of our members experiencing a real difficulty with customers extending the time between invoicing and payment. 39% have seen an increase in payment times compared with 11% reporting a reduction. One member who supplies NHS trusts with computer software has experienced major problems. "The billing of these trusts is an annual event for the payment of existing software licences and therefore, unless cancellation has occurred by 31 Dec of the preceding year, payment should be not only expected but planned for. The vast majority of the 46 trusts that have this software have been customers for years. The process started when we issued proforma invoices on 31st January, requesting that the trusts raise purchase orders and stating that we would invoice on receipt of those for those who wished to pay promptly (out of the current year's budget) but that our payment terms gave until 30 April for everyone. We have just passed the 30th April, having given three month's notice of payment required and here are the results: Unpaid as of today-37% Paid in Feb-6.5% Paid in Mar-26.1% Paid in Apr-21.7% Paid so far in May-8.7 % So even though we are making every effort to work within the system, providing as much notice as is practically possible, we still have over a third of our trusts unpaid. We do have continual dialogue with our trusts as part of our account management and in progressing payments. Excuses are many and varied but most boil down to an inefficiency and lack of interest from the staff we deal with."
h) Overall the picture on business performance is mixed. At the beginning of 2009 FSB members in the Region were more or less equally divided between those whose businesses were doing well or very well (37%) and those who were doing badly or very badly (40%). The remainder reported no change in overall performance.
3. Government help to the East of England a) In February 2009 the Government published a booklet entitled "Real Help for the East of England" which set out details of the help available to individuals, communities and businesses in the Region.
b) Much of this help has been, or will be, delivered through EEDA or Business Link East and we will set out details of our members' experiences of this help below.
4. Access to Finance and the a) Access to finance has been, and continues to be, a major problem for many FSB members. Measures to boost bank lending seem to have failed to meet the expectations given at the time of their announcement.
b ) A survey of FSB members in April 2009 found that 26% had seen an increase in the cost of existing loans or overdrafts in the previous two months.
c) The same survey also found that 28% of members had seen an increase in the overall cost of new credit over the same period.
d) Two examples of the problems small businesses have experienced with banks are from one member:- "They now require:- · an additional 0.25% arrangement fee to be charged on all overdraft facilities whether used or not. · A further 0.45% interest charge on any unsecured overdraft. · Fees to be charged as they are no longer prepared to grant 'free' banking services (previously our credit balances have been offset against their transaction costs) · They have not been prepared to commit to pay more than 3.75% on credit balances."
and from another:-
"we had a shock approx 2 weeks ago when Barclays notified us that our overdraft rates would increase from 2.5% above base to 5.5% above base on our partnership account and 7% above base on our Ltd company account, we raised the matter with our MP and awaited a response from Barclays.
The revised 'deal' for being a long standing customer with an excellent credit rating was a 3.5% with an annual arrangement fee of 0.5%"
e) The Enterprise Finance Guarantee scheme is something that we feel has good potential but its implementation has been hampered by poor communication and the failure of the banks to pass on its benefits. The rhetoric from senior bank management has not been met by individual branches.
f) Our April 2009 of members in the Region found that only 7% of members had been offered access to Enterprise Finance Guarantee scheme.
g) Again the experience of members who have accessed the scheme has generally not been positive. One member successfully applied for £50,000 under the Enterprise Finance Guarantee scheme to start the loan now so there would be an overlap between this and one with the Small Firms Loan Guarantee scheme. He has been told by his bank that they have been told that the Government will not provide the full cover for the Enterprise Finance Guarantee loan in case he defaults on the last payments of the Small Firms Loan Guarantee loan and hence he has been asked for a personal guarantee for 100 per cent of the £50,000 loan otherwise it will be withdrawn.
h) We note that EEDA offer a range of financial support to businesses across the Region but much of it is targeted towards high growth businesses rather than supporting businesses who do not fall into that category but may nevertheless be important local employers or suppliers of a particular product or service.
i) An example of this is the Regional Loan Transition which is again only available to established growth businesses with a short term funding need. To qualify they need to have turnover of at least £1 million per annum whereas the majority of FSB members in the region have a turnover of only £100,000 to £200,000 per annum.
j) Similarly, EEDA's Growth Loan is only available to businesses with a turnover of more than £500,000 per annum and cannot be used to raise working capital. The lack of such capital is one of the main problems faced by businesses having to cope with increased payment times and bank charges.
k) The Small Loans for Business scheme provided by EEDA through Foundation East appears on the face of it to offer more flexibility than the other two schemes except that applicants need to demonstrate the potential to create new jobs. In the current economic climate that is easier said than done and many small business owners are more concerned with saving existing jobs or even having to reduce staffing levels as shown in paragraph 2.f) above.
l) Whilst we welcome any scheme that offers the potential for additional sources of finance we do feel that schemes such as these will do little to address the issue of the lack of access to finance by small businesses across the Region.
m) However, Essex County Council have been even
more bold and established a Bank of Essex in partnership with the Santander
Banking Group to make available loans and overdrafts of up to £100,000
available to
5. The role of front line agencies a) One of the problems facing small businesses seeking help is to know where to turn for advice and information.
b) We welcome the role that Business Link East has had in acting as a first point of contact for small business owners seeking advice. Their publication "Business Essentials-Recession Survival Guide" is an excellent publication giving out simple but effective guidance on how to deal with the impacts of the economic downturn and adjust how to run a business accordingly.
c) We note that EEDA has introduced free "health checks" through Business Link for small businesses to help identify problems and possible support at an early stage. This is important as we have anecdotal comments about business owners who have left it too late to get the right help and as a result have had to close down. Our 2008 membership survey "Lifting the Barriers to Growth in UK Small Businesses" found that 36% of members felt their basic lifestyle would be under threat and 13% would lose everything if their business went into liquidation so the importance of the right help at an early stage cannot be emphasised strongly enough.
d) EEDA's "Business Map" is also to be welcomed as it provides an excellent means of identifying the most appropriate contact for businesses to find their way around the range of business advice and support available.
e) It is not just EEDA that is providing advice and
support to small businesses and again we welcome the manner in which many local
authorities have responded to the economic downturn. For example
f) It is not just County Councils who have responded
to the crisis with practical help. In Essex we have worked with a number of
District Councils,
g) Local authorities also have an important role
to play in promoting small business rate relief. This has been highlighted by
both
6. A missed opportunity a) We sit as a member of the Regional Economic Forum chaired by the Regional Minister Barbara Follett MP. Whilst we welcome the opportunity to participate in this body it is dominated by public sector organisations-there are four business organisations plus the East of England Business Group.
b) We are disappointed that this largely seems to be a body for reporting on delivery of initiatives that have come from central government rather than developing locally focused solutions.
c) We welcomed the proposal to bring forward
the dualling of A11 at Elevedon in
d) We have also been asked to submit our comments on the East of England Implementation Plan to deliver the East of England Plan and Regional Spatial Strategy. Both of these plans were developed when the economy was much stronger and when the projections for growth in the Region were much higher.
e) We cannot see how, in the current and projected economic climate, it will be possible to deliver these plans given the severe reduction capacity in the construction industry that has occurred. This, coupled with the restrictions on mortgages and lack of availability of finance to businesses, must mean that the projections contained in these plans are now largely redundant and both should at the very least be put on hold or at best reviewed with the aim of producing more realistic proposals for each.
7. Conclusions Small businesses have been hit hard by the economic downturn and are experiencing real difficulties in accessing finance or delays in payment by creditors, both in the private and public sectors.
The various financial initiatives by the Government whilst welcomed have yet to make any real impact and those from EEDA are not aimed at the majority of businesses in the Region. However the work of Business Link East and some local authorities is providing real support to businesses in need.
We question the value of the Regional Economic Forum and have doubts about the viability of the East of England Plan and Regional Economic Strategy.
4 June 2009 |