Analysis from ACCA (the Association of Chartered Certified Accountants) and The Corporate Finance Network suggests that SMEs across Wales are worryingly reliant on short-term financing like business overdrafts with uncertainty affecting growth plans.

Data from the latest edition of the ACCA UK and CFN SME Tracker shows that accountants report that 1 in 5 Welsh SME clients (20%) have not returned to pre-covid levels of productivity and turnover.

While this is comparatively positive against UK totals (1 in 4 failing to recover), there is further evidence that Welsh SMEs were reluctant to take a longer-term view. Fewer than 20% of SME clients were seeking finance for growth, suggesting that businesses are delaying growth plans due to the ongoing uncertainty.

With many SMEs focused on the short-term outlook, half of Welsh accountants surveyed expect their clients to utilise overdraft facilities to access cash in the next 6 months, higher than the UK average of 30%.  However, previous data suggested availability of finance may present an issue for many, with results from November’s Tracker showing that 75% of accountants in Wales said clients had struggled to access overdrafts in the previous three months to November.

Further highlighting SMEs’ short-term outlook, only 17% were looking for finance to grow. This reliance on short-term credit highlights the need for ongoing support for the small business community to support longer term growth, particularly if there are more restrictions in the New Year as a result of the Omicron variant.

Demonstrating their cautious outlook and lessened resilience to economic downturns, a third of Welsh SMEs have increased credit checks for potential customers and put tighter payment terms in place.

In terms of the labour market, smaller businesses in Wales are tracking better than the UK average, with fewer than one in ten Welsh businesses planning on making redundancies in the next six to twelve months, below the UK average.

Whilst the number of businesses that are expected to still be trading in 12 months’ time has dropped by nearly 10% in the UK between November and December, Welsh businesses seemed to buck this trend, with over 92% of SMEs expected to still be trading in 12 months’ time, compared to 83.8% nationally.

Lloyd Powell, Head of ACCA Cymru Wales, said:

“While Wales displays several positive trends in comparison to the UK results, the situation facing Welsh SMEs should not be taken lightly. As we move into further restrictions in Wales towards the end of the year, it is very concerning that Welsh SMEs are reliant on short-term finance options such as overdrafts. The Welsh government has announced new restrictions that will impact certain sectors from 27th December and has made £60m available for firms most impacted, but further support may be required.”

Kirsty McGregor, founder of The Corporate Finance Network, adds:

“Looking ahead, there are some major impacts coming in the new year, including business rates increases, an uplift in the national minimum wage, and the new health and social care levy introduction in April adding up to 2.5% to payroll costs, all of which will have a further negative impact on these struggling SMEs. As we head into another period of increased COVID-19 restrictions, I am concerned about the future of the UK SME economy and call on Governments (UK and Welsh) to review their policies to provide longer-term support until this period of uncertainty is over.”

As Wales moves to build a Stronger, Greener and Fairer economy it’s clear that there needs to be an increased focus on supporting Welsh SMEs, especially as we move into a period of greater restrictions. Small businesses are vital to how well Wales will bounce back and to its productivity in the long-term and government initiatives need to reflect this.