The consequences of SMEs cutting back on investment | Featured in the NACFB Magazine
The consequences of SME’s cutting back on investment – is it the right approach to reduce risk?
When it comes to assessing risk it is crucial to evaluate the environment in which SMEs operate and recognise those factors which most impact and determine their investment decisions. Many UK based businesses use national GDP figures and forecasts to gauge the state of the economic climate and inform their future investment decisions.
No signs of slowing down
In February 2017 the Bank of England adjusted its growth forecast from 1.4% to 2.0%, which is a sharp increase and brings forecast GDP to a higher rate than the previous year, which stood at 1.8%. Between October and December 2016, the economy grew by 0.6%, which was the best result among the developed countries. The figure also indicates that the feared economic slowdown following the Brexit vote has not materialised.
This growth trend is echoed within the manufacturing industry where there has been a modest pick-up in business according to the latest report from the Bank of England, which shows that the score for manufacturing investment intentions over the next 12 months in February ticked up to 0.7, from 0.2 in January.
The economic data is consistent with statistics from the Finance Leasing Association (FLA), which also shows no signs of SMEs cutting back or “slamming on the brakes” in regards to further investment. According to the FLA as of January 2017 the total of new business within the asset finance industry stood at £2,307m, which was a 16% increase on the previous year. The asset volumes in the 12 months up to January 2017 were £30,511m, which is 6% higher than the previous year indicating no evidence of declining investment.
What is the true risk for SMEs?
Alan Cooper, Finance Director at Liberty Leasing Plc concluded:
“Certainly, since Brexit it appears the economic data has repeatedly defied the gloomy predictions with the economy continuing to perform strongly and Bank of England forecasts being upgraded. It is also clear from recent FLA statistics that within the Asset Finance industry there are no signs of a slowing down in investment by SMEs. From our perspective at Liberty we haven’t seen any scaling back in investment from SMEs with new business volumes performing strongly in Q1 2017 and there is a good pipeline going into Q2.
There is always a case to be made for fully appraising investment decisions, maximising efficiency and squeezing the most out of existing assets. However, dramatically reducing investment can leave a business in the position whereby they are unable to access the benefits that a growing economy has to offer.
Liberty understand that we have a responsibility to provide clear information to our brokers on the funding options available and how we can best structure deals to meet the needs of their customers. We are here to support growing businesses by offering a range of asset finance products, which can be tailored to the individual needs of the customer. We are committed to ensuring our brokers are aware of our products and ability to structure a deal effectively.
Businesses that are unable to grow can compromise their ability to compete and risk being left behind in a competitive marketplace. Investment in new physical assets and infrastructure are vital ingredients for future growth and success of SMEs in the UK.
It’s important for SMEs to adopt a data driven and objective approach to assessing business risk and future strategy. Within the media there has been some speculation and pessimism, which doesn’t appear to correlate to the actual statistics produced by the Bank of England and industry bodies such as the FLA.
Averting risk should be balanced against the cost of compromising a business’ resilience and ability to compete. SMEs should be focusing on future growth strategies coupled with calculated investment to promote their future growth and success.”