Small firms think big on growth plans, but hurdles remain - FSB

Growth ambitions at small firms are back to pre-pandemic levels but skills shortages, funding gaps and cost concerns threaten to hold them back, according to a report.

The latest Small Business Index report from the Federation of Small Businesses (FSB) found that more than half of small firms intend to grow this year. However, with many highlighting fears over recruitment difficulties and inflationary pressures, the organisation is calling on the UK government to help them overcome barriers.

The call comes as figures show credit applications and approvals hit a seven-year low amid fears lenders will replicate their approach to the last recession.

The study of more than 1,200 UK small businesses by the FSB found that half (54 per cent) expect to grow over the next year. The figure is up four percentage points on Q4 2019 when the Covid pandemic had yet to affect commercial activity.

Small firms have ambitions to grow this year, but are concerned over issues including rising costs and recruitment difficulties. Picture: Paul Faith/AFP via Getty Images.

Around one in six said they expected to increase headcounts this quarter, however a third believe a lack of appropriately skilled staff represents a substantial barrier to growth. One in five (22 per cent) cited labour costs as a major hurdle for expansion, up nine percentage points over the same period. Almost 80 per cent of respondents also said operating costs are rising, a seven-year high.

FSB national chairman Mike Cherry said: “The small business community stands ready to spur our economic recovery. The majority intend to grow over the coming 12 months, and many are looking to increase headcounts.

“Their optimism is, however, hampered by spiralling inflation, labour shortages and looming tax grabs. Come April, they’ll be faced with a jobs tax hike, an increase in dividend taxation, and fresh business rates bills. We urgently need the UK government to start looking closely at the policies that will empower the small business community to spur our recovery from this recession as it did the last.”

Mr Cherry also said the Bounceback loan initiative at the onset of the pandemic had been a real success, “but it can’t be thought of as job done”.

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He added: "New enterprises are launched every day across the UK, never more so than at times like this when the economy is changing apace. Our start-ups need funding to go on and be the employers and innovators of tomorrow. After the financial crash we saw banks pull up the drawbridge for small businesses. It’s vital that this trend doesn’t take hold once again.”

The survey found that one in ten respondents had flagged access to finance as a barrier to growth, and 4 per cent stated that the cost of finance was holding them back.

Fewer than one in ten (9 per cent) said they applied for finance last quarter – the lowest proportion in seven years. Fewer than half (45 per cent) had their application approved, a figure that is also at a seven-year low. The majority (52 per cent) were offered a borrowing rate of 4 per cent or more. One in ten (13 per cent) were offered a rate of 11 per cent or greater.

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