The study was based on a survey of more than 1,750 small and medium sized enterprises (SMEs) in Canada, China, Italy, Singapore, South Africa, and the UK, with 30% of the sample micro businesses employing fewer than 10 people.
It shows that while most SMEs believed the worst of the recession has passed, there was an unexpectedly high number of businesses - between 31% and 54% in each country, including those which have seen high growth and were less affected by the global downturn, who felt they did not have adequate cash reserves to survive another financial crisis.
The surveyed SMEs said the recession has forced them to become better businesses and if they take on risk, it is only where they can have control. Growing businesses, especially in the more dynamic economies, appear to be facing stiffer competition and rising costs, putting profit margins under pressure.
According to respondents, lenders appear to be directing funds to larger SMEs and big corporations rather than micro and small enterprises. The study also found that credit is being directed away from working capital towards capacity building investments and is increasingly likely to be secured against personal or business assets, while equity investments are drawn to acquisitions and to financing local or international expansion.
As commercial providers of finance have become reluctant to finance working capital, assume customer credit risks or refinance debt, the weight of expectation has shifted to shareholders and trade creditors.
The study found that those businesses that value professional or expert advisers above others have performed better - professional advice has given SMEs more confidence about their chances of survival, by ensuring that they have fewer urgent financing needs and better access to credit.
The study has made a number of recommendations.
- SMEs must consider factors such as interest rate increases, exchange rate volatility and inflation when developing business plans and risk management policies.
- Governments can help reduce uncertainty through early and reliable commitments on tax, spending, monetary policy and regulation.
- Governments must consider strengthening loan guarantee schemes for SMEs to provide solutions where sufficient collateral cannot be provided.
- More businesses should explore supply chain finance: whereby large customers provide credit to small suppliers by factoring their own invoices, and governments, commonly the most creditworthy customers of SMEs, should consider similar means of financing their suppliers.
- Business advisers and government-funded enterprise support agencies must prioritise improving credit- and investment-readiness among SMEs by explaining the information needs of capital providers and championing other sources of finance, such as business angels, where appropriate.
- Providers of capital must be clear about their lending or investment criteria and consider the need for security or personal guarantees flexibly, case-by-case.
- Businesses should use financial and credit information on their customers and ensure their information is available to prospective trading partners.
- Governments must acknowledge the critical importance of trade credit as a financial market, ensuring that credit information is widely available and that creditors have access to reasonable means of enforcing their claims.
- Business advisers and government-funded enterprise development agencies should be looking for undercapitalised SMEs and actively encouraging action if necessary.
- Providers of capital should acknowledge the value of professional advice in their communications with SMEs and consider directing unsuccessful applicants to professional advisors.
Press release
© ACCA - Association of Chartered Certified Accountants
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