Small business at mercy of banks

Britain's small businesses are still in the stranglehold of banks, leaving the country's entrepreneurs vulnerable to high interest rates and onerous finance charges, according to a survey published today, writes Mathew Horsman.

The Federation of Small Businesses and accountants Pannell Kerr Forster warn that small businesses are not generating enough profits to become self-financing, and more than half rely on overdrafts and other non-fixed forms of financing. These are repayable on demand, which leaves many of the country's smaller companies dependent on their banks, the survey, "Funding the Growth of Britain's Small Businesses", concludes.

"Only as alternative methods of self-financing and profit retention are developed will small business move from this vulnerable position," said Tony Miller, chairman of the FSB's financial affairs division.

Alarmingly, even those businesses with longer-term, fixed finance arrangements report a wide range of interest rates, and 44 per cent claim to be paying the same or more in interest compared to last year, despite the reduction in bank rates.

According to the survey, based on returns from 2,000 companies, 30 per cent of businesses pay more than 3.25 per cent over base rate, with 11 per cent paying as much as 12 per cent over base rate.

"It is disturbing that so many small businesses do not appear to be benefiting from lower interest rates," said Steven Bruck, partner at Pannell Kerr Forster.

More encouragingly, the vast majority of small businesses have become aware that factoring and invoice discounting are legitimate financial tools.