British small firms want more rate cuts

Britain's smaller companies say they are in need of longer and sustained interest rate cuts if there is to be a decline in the alarming rate at which they are shutting down. The Bank of England on Thursday handed out a large 150-basis points interest rate cut which also served to highlight the harshness of the economic downturn.

For John Johnston, director of institutional sales at brokerage Seymour Pierce, it was too little and too late for smaller companies, particularly those with debt problems..

"They are at least three months behind ... they should have been more proactive and now they're playing catch up," Johnston said.

Smaller companies, which usually are short off the international focus which allows larger groups to evade their risks across markets, have been hard hit in the downturn. The effects of the credit crisis can be seen in figures from the Federation of Small Businesses which shows 280 smaller businesses are closing each week, up from 40 before the downturn.

Begbies Traynor, an insolvency practitioner, said its statistics showed a 16 percent quarter-on-quarter rise in businesses as having significant problems.

Executive Chairman Ric Traynor said rate cuts were vital to kick start a recovery, adding rates must go down and stays down before the real cost of borrowing for smaller companies falls.

"We've gone from one extreme to the other," said Traynor. "Where once any business could borrow virtually any money, we're now in a position where even good businesses can't borrow enough to see themselves through the downturn."

As credit lines have tightened, the status of the around 1,600 UK listed smaller companies has been brought into focus.

DEBT CONTROL

The FSB says 51 percent of smaller companies are suffering from late debtor payments and there has been no improvement in bank lending even with political pressure on the banks to lend.

Andy Berrow, a senior business advisor at Businesslink, a free regional business advice and support service, said it was important companies did not become a bank themselves.

"It's making sure you've got a good policy on debt control, making sure you know what you're owed and that it's coming in on time... and you're not paying too quickly, and do you need to spend cash to buy items or can you look at leasing?"

The corporate sector's struggles are not limited to smaller companies, but stock prices illustrate how much more volatile such companies are perceived to be.