LONDON (AFP) — Some 4.7 million small businesses that are beginning to feel the brutal effects of the financial crisis and the resulting slowdown, which experts predict will become a recession in the next quarter.
They employ 13.5 million people and contribute more than 50 percent to Britain's turnover, but according to the Federation of Small Businesses (FSB), are currently closing at a rate of 280 a week.
At 63, John Hole should be looking forward to retirement and enjoying the fruits of decades running his own business. But the credit crunch and looming recession is threatening everything he worked for.
As his ceramic tile company struggles to cope with declining trade and rising costs due to credit and high oil prices, Hole suspects he may have to use his life's savings to stay afloat.
"At my age, the last thing I want is to be injecting funds into my business," he told AFP from Hereford, near the English border with Wales, where he has run Johns Tile Centre for 32 years.
He hopes to keep his four staff, but says: "I'm taking it day by day."
A recent FSB survey found 84 percent of small firms reported rising costs in the last year, and 46 percent said trade had gone down.
"These are very testing times," said Stephen Alambritis, head of public affairs at the industry body which represents 215,000 small and medium firms, defined as employing less than 250 staff.
After shoring up the banks last month in a 37-billion-pound (47-million-euro, 60-million-dollar) bailout, Prime Minister Gordon Brown's government has now swung into action to help struggling firms.
"Small firms are vital to the strength of our economy," finance minister Alistair Darling said this week, promising to help small businesses benefit from up to four billion pounds in loans from the European Investment Bank.
Ministers also met with bank executives late last month to urge them to relax their lending conditions for small businesses.
The banks involved in the bailout agreed to continue lending at 2007 levels, but firms are complaining they cannot get the credit they need and when they do, it is more expensive than before.
Johns Tile Centre is relying more on loans as business dries up, but the interest rate on its overdraft recently went up three points to 11.5 percent.
Combined with higher transport costs and the rising price of stock he buys in Italy and Spain because of the plummeting value of sterling, "you have quite a devastating effect on your bottom-line profit," Hole said.
In London, Monika Linton does not rely on loans to run her Spanish food business Brindisa, but has a related problem -- as the companies she supplies struggle, their payments slip.
"We have got a lot of debt out on the street," she told AFP, with many accounts now "taking 15 to 30 days longer to pay than they normally do."
Brindisa employs almost 160 permanent staff across the wholesale business, two shops and three restaurants. While business is steady now, Linton says the post-Christmas hangover is going to be tough.
"Up to Christmas I think people can justify pushing the boat out but I think January, February, March are going to be very bleak," she said.
Brindisa is cutting back on overheads where possible, but "if it gets really bad we will have to look at the jobs," she added.
The government has committed to paying all its suppliers within 10 days, and has urged local authorities and healthcare trusts to follow its lead.
But the main opposition Conservatives have called for more targeted measures, urging a value added tax (VAT) holiday for small firms and a cut in their social security payments.
The FSB has welcomed the proposed action but Alambritis admitted only a cut in interest rates would provide the boost needed to prevent a repeat of the recession of the early 1990s, when 1,000 small businesses a week closed.
However, Angela Knight, chief executive of the British Bankers' Association, warned that although they would continue to help small businesses where they could, closures were inevitable.
"As talk turns to recession it seems inevitable that some businesses will not survive, even with the best assistance that banks, government and voluntary agencies can give them," she said.
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