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Almost three-quarters (72%) of businesses are currently preparing for an imminent recession, according to data from Time Finance. The SME lending specialist said UK companies are grappling with rising energy and fuel costs, increased National Insurance and supply chain issues, and warned that too much retrenchment by smaller businesses could result in a sharp downturn, the very outcome they sought to avoid.

Of the businesses surveyed, one in three said they are now scaling back investment, with 27% freezing wage increases, 18% halting recruitment and one in ten reducing their personnel.

Ed Rimmer, Time Finance CEO, commented: “The majority of businesses we have spoken to as part of our latest survey are preparing for a recession this year. While this is understandable, it’s a worrying statistic. Reports of a looming recession can over inflate a sense of caution. It changes the way businesses look to the future; they scale back investment, halt recruitment and some even reduce their workforce. This can in-turn become a catalyst for a recession.

“Businesses are undoubtedly facing huge financial challenges as their costs increase across the board but how businesses respond to these challenges will have a direct impact on the health of our economy. Reckless spending will never make a successful business, but too much austerity can stunt growth. There is a compromise to be found and businesses need support to find that middle ground, to be able to balance the books while still moving forward.”

Time Finance’s survey also revealed that 65% of intermediaries predict a rise in business insolvencies as a result of rising costs.

Rimmer noted that insolvencies are a natural part of the economic life cycle, particularly given the rapid changes in consumer trends and market conditions over the past two years which have seen some business adapt and others cease trading.

“That said, if the rate of insolvencies escalates then that simply means there has been insufficient support for those businesses. Our survey showed that one in five businesses said they were unable to remain competitive. This figure is too high and it is our industry’s job to support those viable businesses, to work with them to find the right funding solutions that help weather the storm while also facilitating growth,” he argued.

When asked which areas of business were most impacted by price hikes, materials and stock from suppliers ranked the highest at 64% closely followed by energy and utilities at 45%, and employment costs and National Insurance - both 36%.

Rimmer concluded: “No sooner are businesses adjusting to one price hike that they face another. That can be overwhelming. It’s putting businesses back in survival mode, a position many hadn’t quite emerged from post lockdown. There’s no question that intervention is needed from the government to prevent the cost of doing business, and the cost of living, from rising any further. In the meantime, our industry has a valuable role to play. Unlike traditional lending, alternative finance is a constant presence in good times and bad.”

New business dip

Latest figures released from the Finance & Leasing Association (FLA) show that total asset finance new business (primarily leasing and hire purchase) fell in April 2022 by 16% compared with the same month in 2021. In the first four months of 2022, new business was 1% higher than in the same period in 2021.

The business equipment finance plant and machinery finance sectors reported falls in new business in April of 18% and 10% respectively, compared with the same month in 2021. The commercial vehicle finance sector reported a decrease in new business of 9% over the same period.

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Commenting on the figures, Geraldine Kilkelly, director of research and chief economist at the FLA, said: “The asset finance market reported a subdued performance in April following a strong end to the first quarter of 2022. New finance provided to SMEs was 7% lower than in April 2021, and to larger companies decreased by 34%. The construction equipment finance sector reported its first monthly fall in new business in April for more than a year.

“Much of the recent volatility in performance is the result of disruption to the supply of assets to finance. Business investment has yet to recover from the pandemic, with transport equipment investment particularly weak. Our Q2 2022 industry outlook survey suggested that more than three quarters of asset finance respondents continued to expect growth in asset finance new business over the next year.”

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