Small businesses are innovating and growing

But the most extensive survey of the small business sector during the recession warns of the need for support to sustain a full recovery

MORE than half of businesses have resisted the worst of the recession by innovating, creating new products and services, according to a new survey by the Federation of Small Businesses (FSB) and ICM.

The FSB-ICM Voice of Small Business Annual Survey 2009 reveals that 53 per cent of businesses introduced new or improved products and services last year, and 51 per cent intend to continue innovating next year, showing that small businesses are keen to grow and develop, despite the tough times.

Colin Parnell, Peterborough branch chairman of the Federation of Small Businesses, said, “With half (48 per cent) of businesses expecting to expand their client base and one in five (19 per cent) intending to employ more staff in the coming year, this is no time to pull the support for this vibrant sector, which is at the heart of economic growth.

“As the UK goes to the polls next year, public debt and unemployment will still be high, and the government will have to make tough decisions to encourage recovery.

“The 2009 survey shows that small businesses will clearly be at the heart of that recovery, and must be given all the support they need to get on with the job of growing the economy out of recession.

“The FSB is calling for a renewed economic stimulus to help small businesses continue to create jobs, get access to crucial finance, innovate and start up new businesses, to get us squarely on the road to recovery.”

The FSB argues that small businesses are the solution to getting the UK out of recession in its election manifesto, Small Business, Big Vote: The Route to Recovery – FSB 2010 Election Manifesto, in which it shows that small businesses are innovators and job-creators, with more than 80 per cent of new jobs created by small businesses in the five years to 2007.

The survey indicates that there is more good news from the small business sector: 27 per cent of the 10,000 respondents said their profitability increased over the last year and 30 per cent said their sales volume had increased over the last financial year.

This research, the most extensive survey of the small business sector since the start of the recession, reveals that despite the difficulties they have faced over the past year, small firms are already leading the way out of recession and back into growth.

However, a third (32 per cent) of respondents who have borrowed finance in the last year reported that they had been charged more, the vast majority saying their rates increased by more than one percentage point. Half (49 per cent) also said they had not taken out any loans at all in the last 12 months, which could be a sign that they were put off by the prohibitive cost of finance.

Three in 10 (31 per cent) small businesses in the survey said a cut in employers’ National Insurance would improve their economic prospects in the recession. Respondents identified growing their business (42 per cent), employing more staff (19 per cent) and coming up with new services and products (23 per cent) as the key things they would invest in with the savings from a tax cut. Other uses include capital investment in the business (35 per cent), marketing (32 per cent) and increased wages (28 per cent).

Another three in 10 businesses (31 per cent) said if banks were to lend more, or more fairly, that would be key to improving their prospects.

The banking system in the UK does not currently provide the channels for finance small businesses need. As demand for credit will be higher still during the recovery, the FSB is warning that the right financing structures must be in place to get us back on the road to recovery. The FSB is calling the Government to put in place a renewed stimulus package of specific and targeted measures to get the economy going again, nurturing the small business sector’s tentative growth.

The FSB is calling for a stimulus package that includes:

  • Renewal of the Enterprise Finance Guarantee when it runs out in March;
  • Suspension of tax increases, including a freeze on employers’ National Insurance Contributions, and a National Insurance rebate for new jobs in small business;
  • Alternative routes to finance for small firms, including through the Regional Development Agencies, a Post Bank and competition among high street banks, as well as a Regional Stock Exchange.