Q2 Federation of Small Businesses (FSB) Small Business Index (SBI) shows a fifth of small firms expect performance to be “much worse” over the next three months and one in ten expect the opposite
- Hiring activity, profits and exports hit all-time low over last quarter
- Finance applications soar along with approval rates following Bounce Back Loan Scheme (BBLS) success
Small business expectations of future performance are increasingly polarised, according to the latest quarterly SBI from FSB, which shows that a sizeable share of firms have already had to let staff go.
Over a fifth (23%) of the 1,400 business owners surveyed for the study expect their performance to be “much worse” over the coming quarter compared to the last three months. The figure is up 13 percentage points compared to this time last year but is down considerably on Q1 2020. The proportion who expect their prospects to be “much improved” compared to the last quarter has risen significantly, standing at just above one in ten (13%).
More than half (58%) of firms surveyed expect their performance to remain stable or worsen over the next three months. Four in ten (42%) expect a relative improvement as lockdown restrictions lift. Three quarters (75%) say that coronavirus is still having a negative impact on their confidence levels. The figure stood closer to nine in 10 (88%) in Q1.
Those in the construction and accommodation & food service sectors are among the most confident about a relative uplift in performance next quarter, with 29% and 26% expecting a significant improvement respectively. Among the least confident are those in the wholesale & retail and arts & entertainment sectors, where only 13% and 2% think likewise.
FSB National Chairman Mike Cherry said: “The majority of small business owners have benefitted from the Government’s emergency support measures but many have not. We urgently need to see the Treasury outline how it intends to support those who have been left out, not least company directors and the newly self-employed. Additional help for those who are being forced to stay closed while others re-open is also a must. We have to avoid a scenario where those who’ve received support are able to navigate choppy economic waters over the months ahead while others are left to sink.”
The share of small firms that have reduced headcounts over the last three months is at an all-time high (23%), while the share doing the opposite is at an all-time low (4%).
More than 16 million people currently work for smaller businesses, equating to 60% of the private sector workforce, according to BEIS.
A record-high three quarters (75%) of smaller businesses report that profits fell in Q2 of this year, up 33 percentage points compared to Q2 2019. The vast majority (82%) say they are operating below capacity.
Among exporters, two thirds (65%) report a drop in international sales – only 12% report an increase. The share expecting a rise in exports over the coming quarter is, however, in-line with Q2 2019.
Mike Cherry added: “There was a lot to welcome in the Chancellor’s summer statement where efforts to increase job creation and retention are concerned. That said, given so many small firms are already being forced to reduce headcounts, policymakers will need to keep existing interventions under close and continuous review to ensure they are sufficient. They should also be conscious that tax increases for small businesses and the self-employed would risk stifling any nascent recovery.
“Government at all levels should do more to help small firms putting protective measures in place. In England, they’ve had to absorb the costs of making their premises safe for re-opening. Enabling them to reclaim expenses linked to these measures and access face coverings easily will help to keep our high streets safe.
“Where local lockdowns are required, it’s important that affected firms are not left stranded without support. New local authority powers should be exercised sensibly and councils should have the freedom to draw on funds to support small firms wherever required.”
The new study shows a surge in small business finance applications – one in three (34%) respondents have sought new facilities over the past three months, up 20 percentage points on the same period last year.
The success rate for applications has hit an all-time high (81%), as has the proportion offered borrowing rates of under 4% (85%).
Mike Cherry concluded: “The BBLS has been a clear success, facilitating more than one million loans to small firms in need.
“Those businesses now need reassurances about the future as they look to realise their full potential.
“A guarantee that they won’t have to start making repayments until they’re turning a profit would give them the confidence to invest and hire today, rather than further down the line when such activity may prove too little too late.”