The Hilton-Baird Financial Solutions SME Trends Index marks a new high in business confidence says Evette Orams
As the economic recovery continues to pick up across Europe, prospects are becoming increasingly brighter wherever you look.
Although we’re still a long way from seeing businesses throwing caution to the wind in pursuit of rapid expansion, a sustained and stable recovery might not be as far away as it was once thought.
In the UK, buoyed by three successive quarters of positive economic growth, businesses are starting to feel much more positive – so much so that 51% of the business owners and finance directors questioned last September in Hilton-Baird Financial Solutions’ SME Trends Index expected their company to expand during the following six months.
Although the year-on-year increase of 18% is stirring enough, the fact that just 4% expect to contract over the same period marks a sensational shift in business confidence.
It’s little wonder, with the same research finding that business performance during the preceding 12 months had also improved markedly.
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Using a range of indicators including turnover, profitability, bad debt levels and tax arrears to calculate a financial score for each respondent, the Business Health Index soared to 1.39 in September – the highest score since the survey began in 2010.
Equally, it should come as no surprise that the proportion of businesses using asset finance and invoice finance to fund their activity also increased over the same period.
As companies accept new orders and recognise an improvement in business and consumer confidence, thoughts will inevitably turn to the methods they use to facilitate this upturn.
As such, reliable machinery and a healthy cash flow are prerequisites to being able to grow comfortably, without jeopardising the company’s immediate future.
This trend is reflected in the latest quarterly statistics from the Finance & Leasing Association, which found that new business in the UK increased on an annual basis during the third quarter of 2013, growing by 4% to £5.3bn.
As Labour peer Lord Mitchell said last year at the Finance Professionals show in London: "Asset finance is key to the UK’s recovery."
Equally important is the asset-based finance industry, which new figures show continues to support British firms.
The Asset Based Finance Association found that advances from lenders to clients reached £17.4bn in Q3 2013, an annual increase of 6%, as client numbers rose by 1%. As a result, total sales from clients grew to £71.3bn.
This represents the strongest quarterly performance ever recorded and adds yet more proof to the theory that invoice finance is setting businesses up for growth.
So while the 51% of total businesses anticipating expansion is encouraging, the fact that this figure is as high as 68% among invoice finance and asset finance users should leave no uncertainty as to how important these two finance sectors will prove to be throughout 2014.
Evette Orams is managing director of Hilton-Baird Financial Solutions