Stuart Preston

The survey of 51 Scottish mid-sized businesses finds that 35% have already frozen salary increases, with a further 43% planning to do so. Over half (51%) have also frozen workforce bonuses.

The research finds that spending on people costs has been reined in across most areas, with 33% also having reduced their headcount and many businesses freezing recruitment (41%).

Mid-market restructuring operations

As well as tightening costs for people, many businesses in Scotland have had to make changes to their operations in a bid to manage costs. Over three quarters (82%) have either already restructured their operations or have plans to do so.

The research shows that spending is being closely monitored within the market, with over a quarter (27%) having reviewed their non-essential spending and a further 57% planning to do so.

Scottish businesses are looking for solutions in a bid to improve performance amid a tightening of spending. Almost half (49%) have invested in productivity, efficiency and automation and a further 37% have plans to explore options in this area.

Stuart Preston, partner at Grant Thornton UK LLP in Scotland, said: “While inflation is, slowly, starting to fall, it’s clear that firms are remaining prudent and closely monitoring their spend across all areas from wages to recruitment and operations.

“Ensuring they keep a close eye on their financing position and rein in unnecessary spending where possible, will help many to remain in a robust position despite the cost pressures they may be facing.

“We have also seen an increase in optimism about business’ future revenue growth expectations, which suggests that many are confident that the actions they’re taking now, or have planned, are sufficient to work through this period.

“Particularly as we have seen slight real wage growth for the first time in over a year which, when combined with the fall in energy costs and usage over the summer, means that consumers will have more disposable income to spend.”

Lending under pressure

Over three quarters (82%) of the Scottish businesses surveyed anticipate that they will need to raise additional funds over the next year. Of these, 69% say that the current terms agreed with their lender are under pressure, whilst 18% of all respondents said that accessing finance has become more challenging over the last 12 months.

Consequently, an increasing number of mid-market borrowers find themselves in need of further capital but unable to achieve the necessary funding or terms with their existing bank lenders. Instruments such as Sustainability Linked Loans (SLL), which offer more favourable terms tied to performance against agreed ESG goals, are increasingly popular with the Scottish mid-market. 71% of respondents already have an SLL in place, and 78% said they will consider one at their next debt raise or re-finance.

Mr Preston continued: “The combined effect of increasing borrowing costs and wider economic pressure on businesses means that the high street banks are finding it more difficult to lend to mid-sized businesses.

“This is particularly true for companies in sectors that are more challenged including manufacturing, hospitality, retail, construction and real estate.

“This poses a challenge for businesses needing to extend their existing borrowing arrangements or raise new capital when they no longer fit what their traditional lenders are looking for.”

He added: “However, the business finance market is undergoing constant evolution with a wide range of lenders, including challenger banks, asset-based lenders and private lenders, now actively looking to help businesses which the high street banks no longer feel able to support.

“This creates all important options to access capital for mid-sized organisations and much needed flexibility when it is most needed.”