Small and mid-cap companies

March 01, 2013, 2:31 PM GMT+0

Small and mid-cap companies’ confidence has improved, but access to funding has deteriorated, according to a YouGov survey commissioned by the Quoted Companies Alliance (QCA) and BDO LLP.

Our poll reveals that the confidence of small and mid-cap quoted companies has improved since the last quarter. However, the sector is experiencing difficulty raising capital from the main sources of funding and companies’ lack knowledge about alternative funding sources which could impede growth.

Companies optimistic about own performance

Companies’ optimism about their own prospects has increased substantially, rising to 64 from 60.6 last quarter. Companies’ confidence in the UK economy is at its highest level since the survey began 18 months ago, but at 47.8 is still just below the 50.0 level that would indicate optimism.

In addition, over half (56%) of small and mid-cap companies expect their number of full-time employees to increase over the next 12 months, while 28% think it will stay the same and one in seven (15%) believe the number will decline.

Turnover expectations have also improved, with the mean expected turnover growth now at 11.2%, up from 7.9% last quarter.

Declining access to funding threatens growth

Despite confidence improving, the sector finds it increasingly difficult to raise capital from the main sources of funding, such as bank finance, public and private equity, and listed debt issuance channels. Ease of raising finance through private equity fell the most from the previous quarter, receiving a rating of 4.2 out of 10, down from 5 in October.

Lack of knowledge about other funding sources

Small and mid-cap companies showed a lack of knowledge about alternative sources of funding, such as corporate bonds, which could also impede growth. More than one fifth (22%) of small and mid-cap businesses did not know what the main benefit of issuing corporate bonds was, and over six in ten (62%) either would not be interested in or are unsure of their opinion of issuing a corporate bond as an alternative source of finance.

Similarly, almost a quarter (23%) of advisors say they do not know whether they would recommend issuing a corporate bond to clients as an alternative source of funding, compared to over half (57%) that would recommend it and two in ten (20%) that would not.

Our poll also found that only 16% of advisors believe there is sufficient information available for companies to evaluate the market effectively for corporate bonds, while a majority (56%) say information is insufficient and 27% are unsure. Almost half (49%) of advisors were not aware of the London Stock Exchange’s electronic Order Book for retail bonds, compared to 51% that were.

Tim Ward, Chief Executive of the Quoted Companies Alliance, said: “Confidence among small and mid-cap companies is creeping up but if finance is not available, then we will not see long-term growth - it’s as simple as that. Government needs to be alive to this and ensure that these engines of growth have access to all the fuel they need.”

Scott Knight, Partner, BDO LLP continued, “Our research highlights a widespread lack of knowledge about the corporate bond market among companies and their advisors. Companies that are capital constrained are in a holding pattern; they see opportunities for growth but feel reluctant to invest if it stretches the working capital too far. But there are options out there for small and mid-caps.”

The Quoted Companies Alliance is an independent membership organisation that champions the interests of small to mid-size quoted companies

BDO LLP is a business advisory and accountancy firm and is a member of the BDO International network

See the full survey results here