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With over a quarter of UK SMEs (28%) trading dollars, the risk to their business should currencies swing the wrong way is potentially high.
With over a quarter of UK SMEs (28%) trading dollars, the risk to their business should currencies swing the wrong way is potentially high.

SMEs Facing Financial Woes

The impact of the tightening of credit available to SMEs is starting to have a significant impact on the cash flow of companies

SMEs Facing Financial Woes

Nearly half of small and medium-sized enterprises worldwide cite higher interest rates as the top concern.
This year a significant new challenge has emerged for SMEs to grapple with–access to financing and the cost of funds, according to the 2016 SME Development Survey conducted by DP Information Group, news outlets reported.
First, the percentage of SMEs with financing issues has risen from 14% last year to 22% this year.
Second, financing is now the fourth biggest cost issue facing SMEs–behind manpower, materials and rent. The number of SMEs having difficulty coping with the cost of financing has leapt from 6% last year to 22% this year.
Of the SMEs with financing issues, 46% nominate higher bank interest rates as the biggest problem while 19% have to provide more collateral to maintain their loans.
SMEs are also being squeezed harder by their suppliers with 34% now indicating tighter access to supplier credit as an issue.
The impact of the tightening of credit available to SMEs is starting to have a significant impact on the cash flow of companies. Cash flow problems are now the top business concern of 7% of SMEs–twice as many last year when it was just 3%.
Commenting on the financing issues facing SMEs, Lincoln Teo, chief operating officer of DP Info said: “Banks and financial institutions have become more cautious when lending to SMEs, and this is reflected in a higher cost of funds.”
According to Teo, a lack of access to affordable financing can trap SMEs in a downward spiral where they cannot grow without more funds, but cannot get funds without more growth.
In Britain
World First’s Q3 2016 Global Trade Barometer shows that UK SMEs are failing to protect themselves from the uncertainty of the US election leaving them exposed to a £34.6 billion ($42.9 billion) currency risk.
Businesses buying US dollars have shortened the length of their forward contracts significantly, dropping from an average of 90 working days per contract to less than 70 days. This shortening–a decrease of over 22%–will leave the majority of USD-buyers unhedged beyond the Christmas period, despite the potential for greater volatility driven by the presidential election result and a potential interest rate hike by the Federal Reserve.
With over a quarter of UK SMEs (28%) trading dollars, the risk to their business should currencies swing the wrong way is potentially high. This, paired with a volatile sterling, could leave those gambling on the result in a difficult position should the dollar strengthen as a safe haven currency in the event of a Trump win.
In Asia and Mideast
Labor productivity in developing Asia has been slowing down since the Global Financial Crisis. Declining global capital flows will gradually reduce capital accumulation in developing Asia, and as more Asian countries see an end to their population bonus, labor force accumulation will eventually diminish. Enhancing labor productivity is thus crucial to sustain growth in Asia.
The SMEs are expected to reverse the deceleration trend of labor productivity in Asia. They are the key drivers of Asia’s economies, accounting for 96% of all enterprises and 62% of the national labor force in the region, but their contribution to national GDPs is still less than half.
Meanwhile, Qatar's Minister of Energy and Industry Mohamed bin Saleh al-Sada  stressed the need for “industrial coordination” among (Persian) Gulf Cooperation Council countries in manufacturing industries, particularly the small- and medium-sized enterprises sector.
He was addressing the Qatar-Saudi Economic Forum in Riyadh on Sunday. He said that attention to industry will bring about sustainable development in the (P)GCC countries (Saudi Arabia, Kuwait, the United Arab Emirates, Qatar, Bahrain, and Oman).
The minister pointed out that investments abroad, estimated at $248 billion in 2015 (excluding sovereign funds), “will not achieve the sustainable development we seek unless they are balanced by productive foreign investments for the next generations”.
He said that the contribution of the industrial sector in the Persian Gulf GDP is 10%, which he said was “very low” compared to other developed countries.

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