View from City Road: Business world sharply divided

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The Independent Online
The Dun & Bradstreet database of company credit ratings must provide the ultimate grassroots survey of the economy, since rather than rely on a sample, it covers hundreds of thousands of firms. It shows a business world sharply divided.

Manufacturing industry and large companies have come through the recession with their premium credit ratings largely intact. Over their most recent financial year, 72 per cent of large companies (more than pounds 50m turnover) have reduced their gearing. They do not need to borrow, yet their credit ratings are an awful lot better than the chaps who do.

The gap between these robust firms and smaller ones that are short of funds has also widened dramatically over the past couple of years. Research into the database by Robert Fleming and a specialist firm, Risk Opportunity Intelligence, finds the recession has left a residue of seriously weakened balance sheets among small and medium-sized firms.

There is no secret about where most of these are found: property, construction, contracting, hotels, accommodation, leisure - all the over-borrowed, undercapitalised businesses that did so well in the 1980s. A majority of high-risk businesses have, not surprisingly, increased their debt-to-equity ratios.

The outlook is not all bad. The number of firms whose credit ratings have risen almost overtook downgradings for the first time since the recession began.

If there is a lesson for the Chancellor ahead of the Budget, it is in the critical importance of cushioning small and medium-sized businesses as far as possible from their post-recession credit problems. But judging by NatWest's quarterly survey of small businesses this week, juggling with tax and other measures is a secondary issue compared with ensuring demand continues to grow. The survey found 37 per cent of businesses cited lack of business as their main problem, dwarfing every other concern they had.