Record 30pc of small firms offered finance at 11 per cent or more in Q2
Three in 10 small firms that applied for finance in the second quarter were offered a rate of 11 per cent or more – a new record since the Federation of Small Businesses (FSB) began collecting its data.
The trade body’s latest small business index found that interest rates are rising rapidly for small business borrowers, after a series of rate hikes from the Bank of England.
In the same quarter last year, only one in eight firms (12 per cent) were offered a rate of 11 per cent of more.
And the proportion of small businesses applying for finance who were offered a rate of up to four per cent fell from 37 per cent in the second quarter of 2022 to just five per cent in the second quarter of this year, the index found.
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The FSB’s research showed that small business confidence had stalled in the second quarter, with the index’s headline confidence measure falling to -14.2 points from -2.8 points in the first quarter.
Looking at barriers to growth, the domestic economy remained the most-cited concern, noted by 61 per cent of small businesses, while consumer demand was a worry for 36 per cent of firms.
Rising costs were an issue for the overwhelming majority of small firms, with 85 per cent saying they had risen compared with the same period in 2022.
Almost half (49 per cent) of small businesses reported an increase in labour costs and one in five (20 per cent) reported an increase in financing costs, up from 45 per cent and 15 per cent in the first quarter respectively.
While small firms are cautious about their performance in the next quarter, 51 per cent of firms expect to grow over the next 12 months, up from 46 per cent in the first quarter.
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“Although the upturn in small firms’ confidence from the first quarter didn’t carry over into the second quarter of the year, the message from our research is that small firms’ confidence in the future is looking rosier,” said Martin McTague, the FSB’s national chair.
“Over half of all small firms expect to grow over the next year, for example.
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“There are undoubtedly challenges ahead. Small firms are already feeling the impact of rate rises on their margins, and through lower consumer demand, and further increases will undermine the prospects of a recovery in confidence. Small businesses are very alive to the danger that interest rate rises will overshoot the level needed to curb inflation, and will instead act as a drag on economic expansion.”