The UK economy is in a state of uncertainty at present and with large companies finding it tough it is important to understand how the current situation will impact on Small and Medium-sized Enterprises (SME’s) and how SME’s contribute to the UK economy as a whole.
What is an SME?
A small to medium-sized company is a rather broad-based term but has been quantified by the EU as part of ‘Recommendation 2003/361/EC’ so that;
| Balance sheet total
| < 250
| ≤ € 50 million
| ≤ € 43 million
| < 50
| ≤ € 10 million
| ≤ € 10 million
| < 10
| ≤ € 2 million
| ≤ € 2 million
(Image source - http://ec.europa.eu)
As well as the traditional employee headcount there have been financial ceilings introduced however a business does not have to meet both to move up the chain.
Traditionally small businesses are thought of as the self-employed and those with just a few employees but this does not sit with the EU categorisation.
Why are they important?
SME’s are vitally important to the UK economy, look around any town centre and beside the massive chain stores you will see a proliferation of small businesses from family run bakers to sole traders fixing computers, as Napoleon said ‘Britain is a nation of shopkeepers’ he probably meant this as an insult but in the days of price wars rather than naval wars it could now be deemed a complement!
It may surprise you to know that;
* SMEs make up 99.9% of the total number of businesses in the UK * SMEs provide 59.1% of all private sector jobs
* SMEs generate 48.7% of total public sector turnover in the UK (Figures from startupdonut.co.uk)
And it is not just in the UK that SMEs are abundant across the EU “Micro, small and medium-sized enterprises are socially and economically important, since they represent 99 % of all enterprises in the EU. They provide around 90 million jobs and contribute to entrepreneurship and innovation” (http://ec.europa.eu)
So SMEs are important and during a recession with fewer and fewer steady jobs available with traditional employers many more people are choosing to start their own businesses in an attempt to secure an income, this will increase competition but will be tempered by the failing of those existing businesses who have suddenly had their credit restricted, of course every business starts with plans of world domination but ‘the freedom to succeed goes hand in hand with the freedom to fail’ (Pratchett, 2010, Pg 477) What help is there for the SME sector?
SME’s are perhaps the most vulnerable of businesses, when the banks or a car manufacturer is in trouble the government will say that they are too big to fail and bail them out, be a few months late with your barbershop tax bill and the sound of metaphorical jackboots will be in the air. During the current political and economic climate, recession and credit restriction, we look to the government to help SME’s and with this in mind when the coalition took power they were quick to announce Project Merlin. The idea, announced in February 2011, was that “under the Project Merlin arrangement the UK's five main lending banks – Barclays, HSBC, Lloyds Banking Group, RBS and Santander – had agreed to make it easier for smaller firms to access credit” (out-law.com) and “under Project Merlin, banks will lend about £190bn to businesses this year - including £76bn to small firms” (bbc.co.uk) however this relied on the co-operation of the banks and there has been widespread condemnation of the banks efforts to make credit available to small business. A year on from the announcement it was revealed in February 2012 that;
• Lending to SMEs was £74.9bn, £1.1bn short of target
• Overall lending was £214.9bn, nearly £25bn above target (guardian.co.uk)
So while banks have increased lending to larger companies the SME sector is still being underfunded. Now the government has developed the...
References: Pratchett, T (2004) Going Postal, Doubleday, Pg 477
Armstrong, H & Taylor, J (2000) Regional Economics and Policy, Wiley-Blackwell, Pg 285
Boone, L E & Kurtz, D L (2010) Contemporary Business, 13th Edition, John Wiley and Sons, Pg 342
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