Rising costs causing smaller SMEs to struggle

Steeper loan costs and the rising cost of inflation are causing SMEs to struggle when compared to their medium-sized counterparts.


Research from Aldermore shows that the total cost of financing for SMEs remains higher than it did a year ago.


Interest rates offered on loans to small companies continue to rise as the average rate offered to a small business was 4.84 per cent in May, up from 4.59% the year before.


Meanwhile, rates offered to medium-sized enterprises fell back to 3.35% in May from 3.39% three months previously which was down from 3.49% in May 2012.


Annual average cost inflation for SMEs climbed to 1.1% in Q2 this year, up from 1% in the first quarter and the first time that a rise was experienced for six quarters.


It appears the measures are having little impact of small business owners’ confidence though, as it climbed for the fourth quarter in a row in Q3 of this year and reaching its highest peak since Q1 of 2010.


However, businesses are remaining reluctant to invest as SMEs expect to increase investments by 1.5% over the next 12 months, considerably lower than the 3% seen prior to the financial crisis.


Aldermore group commercial director Mark Stephens said:


“Although this quarter saw a slight rise in annual cost inflation we expect this to fall back as the impact of increased wage growth levels out in the next quarter.


“It is interesting to note that although SMEs are experiencing higher confidence they are holding on to their cash and appear reluctant to invest.


“This suggests businesses are suffering from a case of the once bitten twice shy syndrome choosing to hoard their cash rather than invest it after the past five years of pain.”


Despite this, the overall prospects for the growth of the UK economy appear to be looking up as the latest revised GDP estimates are higher than before.


The Treasury now expects GDP growth of 1.3% this year and 2.1% next year, up 0.4% and 0.5% respectively compared to three months ago.


By Phil Smith


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