Cost of borrowing ‘hurting’ small businesses

Small firms are feeling the effects of the global credit crunch, a new survey has shown.

The survey, carried out by the Small Business Research Trust (SBRT) and the Forum of Private Business (FPB), covered the first quarter of 2008.

Of those firms that responded, almost three-quarters (74 per cent) with both loans and overdrafts said that lending rates had risen during the past six months.

Some 59 per cent reported that increases in interest rates had had a ‘negative' or ‘very negative' impact on investment.

Sales have also been adversely affected. The proportion of businesses that experienced a fall in sales was up from 26 per cent to 33 per cent compared to the last quarter of 2007.

A majority of firms had little confidence in prospects for future growth. Just 28 per cent predicted that sales would grow, while only 16 per cent anticipated an upturn in investment expenditure.

Phil Orford, the FPB’s chief executive, said: “The survey shows trading conditions have declined significantly this quarter in all areas – sales, employment and investment, with only medium-sized businesses suggesting any growth in levels of employment.”

Mr Orford added: “This contrasts with the optimism expressed at the end of 2007, where confidence in the future level of economic growth still showed signs of remaining stable.”