UK small businesses pare back investment

The UK’s smallest companies have scaled back plans to invest in their businesses in the first half of this year, according to the Lloyds Bank.

The bank’s latest Business in Britain research finds that companies with turnover of less than £1m (US$1.22m/€1.16m) expect to invest an average of £21,690 in their businesses in the next six months – a drop of 74% since July, when firms said they expected to invest £83,560.

Economic uncertainty was the most commonly identified threat over the next six months, cited by 31% of businesses, followed by weaker UK demand (17%) and political uncertainty (10%).

The fall in investment contrasts with the amount of money firms invested in the latter half of 2016, with the average value of companies’ physical assets increasing by 25% to £169,870 from £135,630 last July.

The proportion of assets that businesses own outright remained broadly static during that period, dipping slightly from 88% to 87%.

“By maintaining a high proportion of assets that they own outright, businesses build a strong capital position, providing a buffer to any economic shocks,” commented Jo Harris, managing director, retail business banking at Lloyds Bank.

“Businesses need to be careful that in cutting back on investment to boost resilience they don’t put the brakes on too hard, and end up slowing their growth by not investing in new physical assets like equipment and stock.”

Financial awareness

Although UK small businesses are capitally strong and are preparing for possible future shocks by cutting investment, many are still relatively unprepared to counter any negative impact on their working capital due to a lack of awareness of alternative forms of funding, reports Lloyds.

Only 35% of businesses are aware of invoice finance, which can help short term cash flow challenges by allowing companies to access up to 90% of an invoice’s value within 24 hours of it being issued.

Fewer than one in four (23%) are aware of trade finance, which includes a range of tools to help businesses trade internationally.

Even where there is better awareness of products, many companies are not taking advantage of them. While 60% of small businesses are familiar with hire purchase and leasing, only 8%n have used it in the past year.

Adrian Walker, managing director of global transaction banking at Lloyds Bank, added: “Businesses can protect themselves from external shocks in various ways. Using different types of funding that are more tailored to their exact needs can help businesses unlock the thousands of pounds they have tied up in physical assets which can be used to invest in growth.

“Missing out on opportunities for growth – such as increasing exports to make the most of the weaker pound – might be as damaging as any negative future shocks that may occur.”

Investment is defined as purchasing new equipment or machinery, taking on new company vehicles or property, or recruiting new employees.

 

 

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