Scottish SMEs optimistic, as proportion struggling retreats - but hurdles remain

Scottish small businesses have outlined a positive prognosis, with the proportion that are growing remaining stable, with the percentage of those scaling back or struggling to survive plummeting, according to research by Novuna Business Finance.

The firm has polled small business leaders and senior decision-makers, with 28 per cent of such firms in Scotland predicting significant or modest expansion in the next three months – a figure that has remained stable for the past four quarters, and sits just below the UK average figure of 32 per cent.

Novuna Business Finance, which provides business asset finance to small and medium-sized enterprises (SMEs) and bigger corporations across the UK, also found that the proportion anticipating contraction this quarter hit its lowest level in almost four years (at 12 per cent versus 13 per cent in the third quarter of 2019). The latest figure is almost half the proportion in the previous quarter, and “well below” the average for the past five years of 23 per cent.

The survey also showed how half of small businesses in Scotland said they had plans to grow their businesses in the next 12 months that would require finance/borrowing money. At the top of the list, one in eight said they had plans to invest in new vehicles, while 12 per cent was the proportion both that said they needed finance to increase their headcount and to move into a bigger location.

The survey found that half of small businesses in Scotland said they had plans to grow in the next 12 months that would require finance/borrowing money. Picture: Getty Images/iStockphoto.

The new research follows the news that Scotland had outpaced both the UK and Europe on foreign investment for the second year in a row in 2022. However, Novuna Business Finance added that access to finance for smaller firms could become more of a challenge, with gross lending to UK-based SMEs by the main high street banks having fallen by nearly a fifth in 2022, for example.

Barriers

Novuna Business Finance also found that external barriers to growth were becoming more intense. Leaders were asked about the hurdles currently restricting their businesses from expanding in the next three months, with the main concern (at about a third) around general market uncertainty, followed by red tape/bureaucracy issues and high fixed costs at 19 per cent apiece. In each case, the proportion of businesses who saw these as issues stymieing their businesses had increased in the last two years.

Joanna Morris, head of insight at Novuna Business Finance, welcomed the “signs of confidence” evident in the survey results, “particularly after the considerable headwinds that have been faced by small businesses in the past five years". She added: “However, many of the issues that have plagued small businesses during this time have not gone away – from high fixed costs, economic uncertainty, and excessive red tape – which will continue to present challenges for leaders to contend with.

“Access to finance is key for small businesses in their ability to enact their plans and retain confidence. This is becoming a growing issue that must be tackled,” he also said – and stressed that Novuna Business Finance is “committed to helping [such firms] develop and grow”.

The firm, which as of 2021 is part of global finance giant Mitsubishi HC Capital Inc., offers the likes of hire purchase, finance lease services, stocking and block discounting, and has £6.5 billion of net earning assets plus nearly 1.3 million customers.