Finance: Quick fix slows down UK firms: An aversion to loans may be threatening the growth of small and medium sized companies

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The Independent Online
OVER-RELIANCE on short- term finance threatens the expansion of small and medium- sized UK companies, according to a report by Grant Thornton, the accountants, and Business Strategies, the economic forecasters.

The second annual European Business Survey, published last week, shows that 70 per cent of UK small and medium- sized enterprises (SMEs) use overdrafts and only 47 per cent use loans, compared with continental Europe's average of 57 per cent in each case.

Furthermore, only 6 per cent use factoring, which aids cash flow by enabling a company to have an advance on its invoices, compared with the European average of 11 per cent. Few take advantage of external equity.

Despite this, SMEs in the UK are more likely than other European companies of similar size to believe that their current funding sources are sufficient to support future plans.

But two-thirds of those who do not feel they have sufficient finance are seeking alternative sources, with a quarter - the same as the European average - considering a revision of their plans.

However, the UK performs better in the controversial area of late payment, with firms typically having to wait 49 days to be paid, compared with the European average of 65 days. Denmark has the lowest payment period - 36 days - while Italy's 90 is the longest.

Various plans for dealing with the problem - which is felt to be particularly harmful to smaller companies - have been put forward. At last week's Brussels launch of the survey, Raniero Vanni d'Archirafi, European Commissioner responsible for enterprise policy, warned that a directive would be introduced unless member countries took effective voluntary action.

Andrew Godfrey, Grant Thornton's head of growth and development services, said: 'Although a high proportion (of SMEs) feel forced to curtail their future plans, I believe there is, in fact, no need for such drastic action on the basis of a lack of finance. The real problem is knowing where to get it, and this does raise questions as to how clearly funding sources are signposted to SMEs.'

Sue Birley, entrepreneurship professor at Imperial College London's management school, and consultant to Grant Thornton, added that many companies were also missing out on European Commission initiatives because they did not know about them. As a result, the communication task for the EC was enormous.

'It's a question of priorities. In an SME the entire burden of running the business falls on a very small body of people,' she said, adding that the Commission should introduce simple schemes that last.

She will publish the results of detailed analysis of the findings in such areas as exports later in the year.

The survey, which covered all the countries in the European Union plus Austria, Malta and Sweden, also shows that UK companies were less committed to training than their counterparts elsewhere.

Only 7 per cent were planning programmes in 1994, compared with the average of 10 per cent. Italy was the only country to show a smaller proportion.

While time and cost were the main constraints, a fifth of UK businesses felt there was no need for training. This alarmed Mr Godfrey, who said it suggested 'a more fundamental reluctance which seems to be embedded in the UK business culture'.

(Photograph omitted)

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