Small businesses do not love their banks, as the banks are large and impersonal, and withdraw their financial support in hard times. The UK economy is still performing well, historically speaking, and all the economic indicators suggest an economy broadly in balance with rising production, consumption, income and wealth. Even productivity has improved. Finance is not a major problem.

Looking more closely, it can be seen that manufacturing, in particular, has suffered badly, as has agriculture. Business services have prospered, however, and the growth in small firms has been particularly marked in that area. The number of small firms has been reasonably stable in recent years, with a fall in medium-sized businesses accounted for by industrial restructuring.

Business failures have remained low in number, and business confidence remains more buoyant than in the early 1990s.

Small businesses have gradually been moving from overdraft finance to loans, with an increase in leasing finance as the pace of technological change becomes more demanding. Loans are being taken out for longer periods, and at lower rates of interest. Equity finance is only slightly more popular than in the past, despite heavy government support for private investors, such as venture capitalists and business angels. Small and medium-sized enterprises (SMEs) often rely on their internal resources and family when they start up. Government incentives are selective, focused on socially-excluded areas, and complex. Advisory services, such as the Small Business Service (SBS), badly need reform if they are to deliver an accessible service to small business.

In 2001, SMEs expressed more concern about the availability of orders than since the upturn of 1996, and their concern about skilled staff shortages has been persistently high since the early 1990s. The availability of finance has fallen as a source of concern since 1992. With interest rates at their lowest for several decades, SMEs put the cost of capital at the bottom of their list of concerns.

SMEs are, however, discontented with their banks: although the charges made by banks have receded from the high levels recorded before the Cruickshank Report (1999), many SMEs are concerned that they no longer have the face-to-face contact with their relationship managers that they used to have. The closure of branches is deeply unpopular.

Four major banks dominate the small business finance market, and while one has recently been taken over with the promise to restore the branch-based business manager, the likelihood of change is remote. A Competition Commission report that would make wide-ranging recommendations for change in provision was promised for mid-2001, but has been delayed until 2002.

Small businesses across the EU are in much the same position, and have similar views about financial provision. There are significant differences between individual countries in the detail of funding, and even more in the provision of e-commerce and e-banking.

During the next 5 years, the SMEs will follow the economic cycle and have more difficulty in obtaining finance. Confidence will be shaken. The innovations of e-banking will not be revolutionary, and the number of branches will stabilise while the nature of customer support changes in their favour.