Firms believe the future looks good (From The Wiltshire Gazette and Herald)

Firms believe the future looks good

SMALL and medium sized businesses (SMEs) in the South West are showing record levels of confidence in the economy according to a new survey.

According to the Tenon Forum survey on Entrepreneurial Britain, not only are SMEs confident about the economy but around 90 per cent are optimistic about their own prospects in the next year.

Despite the optimism however, seven out of 10 businesses said they would not consider borrowing within the next 12 months to invest in growing their business.

Usually, a readiness to borrow is sometimes seen as an indicator of the state of the economy and one reason why businesses are not wanting to borrow could be because of the fear of interest rate rises.

Interest rates currently have a base rate of 4.25 per cent and nearly a third of small and medium sized businesses say that a rise to five per cent would have a severe negative effect on their future business plans.

Jolyon Stonehouse, director of Tenon said: "It is encouraging that the level of confidence has increased so dramatically in the last six months with 81 per cent of South West respondents reporting that they feel positive about the impact of the wider UK business environment on SMEs compared to 66 per cent in autumn 2003.

"What appears more concerning is that the threat of a rise in interest rates is dissuading SMEs from borrowing to expand their business."

Nationally, larger firms are more likely to consider borrowing. A third of firms with 200-499 employees are intent on borrowing compared to only a quarter of firms with fewer than 200 staff.

Over half those companies with between 200 to 499 staff will borrow over the next year to finance an acquisition.

The pattern appears to be that larger SMEs are able to use borrowing for more strategic reasons whilst smaller companies may be more likely to be borrowing out of necessity.

Anthony Osborne