Medium-sized businesses in the UK are looking to pay down long-term debts as they enter a period of consolidation.
More than three quarters (76 per cent) of mid-market business leaders are confident about the economic outlook for their company, but this hasn’t converted into growth ambition, according to a study by finance provider BLME.
The survey highlights that despite an optimistic outlook, almost a third of firms prioritise paying down debts over the next 12 months, an increase of 18 per cent on 2013.
This view is in stark contrast to the previous 12 months, where 52 per cent of mid-market businesses that applied for bank finance did so to invest in the growth of their business.
Three quarters (76 per cent) of businesses that raised finance from a bank achieved turnover growth, adding an estimated £68 billion to the UK’s economic output as a result.
The survey reveals an apparent disconnect between respondents’ positive view of the current economic environment and their growth ambitions, with the smaller firms having greater ambitions.
As many as 44 per cent of firms are happy operating as a mid-market business, with little desire to get any bigger. Some mid-market businesses say they are entering a period consolidation as uncertainty remains over interest rate decisions, as well as the outcome of the 2015 election.
More on growth plans:
Jervis Rhodes, head of corporate banking at BLME says, ‘Over the past 12 months the UK economy has kicked into gear and this has been reflected in the optimism of mid-market corporates.
‘However, we are starting to see the first signs of change as businesses undertake some financial housekeeping before pursuing the next stage of growth.’
The BLME research shows that while mid-market firms are borrowing on average £24.4 million in finance, there has been a fundamental shift in the way they are using it.
Finance once used for fuelling expansion is now being focussed on clearing debts, with firms looking at stability ahead of potential uncertainty in 2015.
Rhodes adds, ‘This issue poses some difficult questions: just what needs to be done to inspire and nurture the UK’s big companies of tomorrow?
‘This has far-reaching implications for the competitiveness of the UK through issues such as productivity – bigger companies simply offer greater scale and the productivity this affords.’
Rhodes adds that, when reviewing the financing requirements of the UK mid-market, too many firms are still being lumped under the ‘SME’ label.
‘Small and medium-sized companies have very different funding needs and we firmly believe that a one-size fits all approach simply does not work.
‘Mid-sized companies need to be treated separately in order to most effectively service their funding requirements, supporting their growth ambitions and in doing so also support one of the UK’s most important economic sub-sectors.’