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Viable firms at risk as access to working capital gets tougher
The CBI has published a major survey of UK-based companies which examines how the financial shocks of recent weeks are spreading across the whole economy.
The online survey conducted by Ipsos MORI in October covers 204 firms of all sizes, and across all sectors, with a combined global turnover of £326 billion and around one million employees. It explored a wide range of issues, from the immediate day-to-day impact and expected prospects for 2009, through to the specifics of operational planning.It
found that half of all businesses affected were reporting a deterioration in the availability of working capital, with three quarters expecting to see the situation get worse.Two thirds of affected firms said stringent new conditions had been imposed by lenders and, most worryingly, one third of businesses reported the reduction or withdrawal of lines of credit. A further third said applications for new credit had been refused.
As the economic crisis intensified, Ipsos MORI went back to over half of the original sample. By early November - just one month on - the number of firms affected reporting reduced and withdrawn lines of credit had risen to over 40%.
Smaller companies were twice as likely as larger companies to have new credit refused and much more likely to face increased costs and loan conditions. Meanwhile, larger companies are more likely to have greater restrictions placed on existing lines of credit.
Richard Lambert, CBI Director-General said: "This survey presents a disturbing picture of how the turbulence in our financial system has spread to the whole economy, and it lends weight to our call for targeted fiscal and policy measures. "The effects are acute for both working and investment capital and are causing major re-writes of business plans.
"We understand the difficulties the Banks are facing, and recognise that there is no easy silver bullet, but there are pro-active measures that Government can take to make the next six months less difficult."
What does 2009 have in store?
The survey also makes clear that the dramatically altered business conditions of the last couple of months have significantly changed business sentiment for 2009.
In October, five times as many businesses expect business conditions to be worse in 2009 than expect it to be better - and this evaluation is worsening. 74% feel it will get worse (and 40% much worse), while only 14% expect conditions to improve.
When the question was asked again in November, the mood was more negative. The number expecting things to worsen rose to 78%, with just 10% expecting improvement.
Larger companies were more pessimistic generally than smaller with 50% of large companies expecting conditions to be much worse compared with 36% of smaller firms.
Mr Lambert said: “These figures illustrate how business confidence has fallen in recent weeks and how uncertainty has affected sentiment."
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