The latest Small Business Index (SBI) for Q4 2023 reveals a cautious stance among small businesses, with growth expectations for 2024 dampened by late payments.  

According to a report by the Federation of Small Businesses (FSB), which serves as a sentiment barometer, businesses’ optimism has waned under challenging trading conditions.  

The percentage of small businesses planning to increase capital investment remained nearly unchanged from Q3 to Q4, with a slight increase from 25.1% to 25.6%, reflecting a cautious approach to spending amid high interest rates. 

The overall growth aspirations for small firms have seen a slight decline.  

In Q3, 49.6% of small businesses anticipated growth while 12.7% were preparing for contraction. These figures shifted to 48.2% and 15% respectively in Q4. 

Sector-specific optimism varied, with 56% of information and communication companies showing growth predictions while the hospitality sector displayed pessimism, with a concerning number expecting to close entirely within the next year. 

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Only 31.6% of accommodation and food service sector businesses expect to grow while 35.5% predict that they will contract.  

Among those predicting contraction, one in eight companies in the hospitality industry expect to close entirely in the next 12 months, nearly 3.4% times the rate for all businesses. 

Meanwhile, 54.8% of manufacturing and 47.3% of retail and wholesale companies have forecasted growth. 

As per the report, the incidence of late payments has risen, affecting nearly two-thirds (65.8%) of small firms in Q4, up from three in five (60.8%) in Q3.  

This has contributed to the cautious outlook, as the worsening of late payments affected over a third of these businesses.  

Additionally, the perception of new credit availability and affordability remains negative, with only a small fraction of small businesses rating it positively and over half viewing it negatively.  

Among those who secured new credit, a record one-third were offered rates higher than 11%. 

FSB national chair Martin McTague said: “When we look at how small businesses fared towards the end of 2023, it is hardly surprising that the overall economy also stuttered, with Q4’s poor performance officially dragging the UK into a recession.  

“One major barrier to investment among small firms is the imposition of personal guarantees for even relatively small amounts, which is why we raised a super-complaint with the Financial Conduct Authority about the practice.  

“Another threat to small firms’ financing options looms, however, with the planned removal by the Bank of England’s Prudential Regulation Authority of the SME Supporting Factor, which allows lenders to hold reduced levels of capital to counterbalance loans to SMEs.  

“Unless matters change, the holding pattern seen in the SBI results looks set to carry on, with the impact felt more keenly in some sectors than others.  

“Late payment is a scourge and one that should not exist – there is no excuse, with modern business banking methods, for large companies to hold onto money due to small suppliers. Overdue invoices cause uncountable amounts of stress and harm to small business owners, leading to sleepless nights and lost productivity.”