Business funding is a 'vicious cycle'

Accountants and business adviser, BDO Stoy Hayward, reveals that in 2009, only 38% of TMT businesses said it was easy to get access to new funding in comparison to 73% in 2008. In addition, the number who found it difficult to get access to funding more than doubled to 30% - up from 14% last year. Julian Frost, head of TMT, at BDO said: "We are really concerned about TMT businesses' ability to access the funding they need to grow their businesses effectively. We're hearing increasing levels of frustration being expressed by TMT businesses as financiers say to them 'meet your growth forecasts and we'll support you with additional finance'. These dynamic innovative businesses need the additional capital to meet their growth forecasts. All this is just creating a chicken and egg situation." Frost expressed concern that if the economic environment remains tough over the coming months, the situation is likely to become increasingly difficult. "Many businesses may feel that funding has dried up completely," he warned. The survey said that 55% of respondants are not looking to raise capital externally this year, up from 17% last year. In 2008, 59% of TMT businesses were looking to investment banks, private equity and the capital markets for finance; this has fallen to 14% this year. Instead, the number of businesses looking for straightforward bank loans has almost doubled from 9% to 17%. Frost continued: "These results are clearly a reflection of the difficult environment that TMT businesses are experiencing and suggests that companies are having to scale back their long term plans in view of the current economic situation. TMT businesses have found themselves in an ironic situation as the banks, particularly those who have been nationalised, are being encouraged (if not pressurised) to lend. However, there is a perception amongst businesses that obtaining bank funding has become a very protracted and expensive process. If companies continue to believe access to funding has dried up then only those in desperation will be approaching the banks, and the banks will see fewer high quality lending opportunities. It's a vicious circle." Frost warned that if this trend continues, there is a real risk that investment in research and development will dry up, stalling UK innovation.