In 2009, only 38 per cent of TMT businesses said it was easy to get access to new funding in comparison to 73 per cent in 2008. In addition, the number who found it difficult to get access to funding more than doubled to 30 per cent (up from 14 per cent last year).
Julian Frost (pictured), Head of TMT, at BDO Stoy Hayward said: “We are really concerned about TMT businesses ability to access the funding they need to grow their businesses effectively. We’re hearing increasing levels of frustration being expressed by TMT businesses as financiers say to them ‘meet your growth forecasts and we’ll support you with additional finance’. These dynamic innovative businesses need the additional capital to meet their growth forecasts. All this is just creating a chicken and egg situation.”
“As the economic environment remains tough over the coming months, the situation is likely to become increasingly difficult and many businesses may feel that funding has dried up completely,” he continues.
Many survey respondents have scaled back their capital raising plans – 55 per cent said this year that they are not looking to raise capital externally, up from 17 per cent last year. For those who are looking for capital, we have seen a major shift in source – in 2008 59 per cent of TMT businesses were looking to investment banks, private equity and the capital markets for finance; this has fallen to 14 per cent this year. Instead, the number of businesses looking for straightforward bank loans has almost doubled from 9 per cent to 17 per cent.
“These results are clearly a reflection of the difficult environment that TMT businesses are experiencing and suggests that companies are having to scale back their long term plans in view of the current economic situation,” continues Frost.
“TMT businesses have found themselves in an ironic situation as the banks, particularly those who have been nationalised, are being encouraged (if not pressurised) to lend. However there is a perception amongst businesses that obtaining bank funding has become a very protracted and expensive process. If companies continue to believe access to funding has dried up then only those in desperation will be approaching the banks, and the banks will see fewer high quality lending opportunities. It’s a vicious circle,” points out Frost.
“If this continues there is a real risk that investment in Research and Development, the lifeblood of many TMT businesses, will dry up, stalling UK innovation,” concludes Frost.
