Small businesses and entrepreneurs in the UK are facing a decidedly mixed picture this autumn, with public sector spending cuts, falling confidence in the state of the UK economy, and the possibility of another frozen winter all playing their part.

According to research conducted last month by insolvency trade body, R3 (‘Rescue, Recovery, and Renewal’ , also known as the Association of Business Recovery Professionals) around 10% (or 148,000) of the small businesses polled by the organisation fear they could be pushed into insolvency if they lose their public sector contracts, a strong possibility in a number of cases following the coalition government's comprehensive spending review later this month.

According to R3, this is reflective of an overall trend, with one third of small businesses describing themselves as ‘reliant on contracts from the public sector’. This ‘worst case’ scenario would have a dramatic effect on the current levels of corporate insolvency.

R3’s President Steven Law commented:

“It is of course highly unlikely that all public sector contracts will be withdrawn and the figure of 150,000 business failures would represent a worst case scenario. Yet with the prevalence of small businesses in the UK and an increasing reliance on public sector contracts dating back to 1990s, these cuts are likely to be felt extremely keenly. Businesses need to be aware of this risk and seek professional advice before this reliance on public sector work threatens their survival. We have just seen the recent case of the Connaught collapse, blamed on local authorities deferring spending on contracts after cuts.”

Meanwhile, the Business Trends Optimism Index recently compiled by accounting firm BDO revealed that between August and September of this year, there had been a drop in confidence regarding trading in the coming months, with sentiment at its lowest since May 2009.

And to top it all, winter is on its way again, and according to those in the know, weather-wise, it's likely to be along the lines of that experienced in 2009/10, which caused widespread disruption for businesses and individuals alike.

The Forum of Private Business is therefore urging the UK's small businesses to put in place "continuity plans" ahead of time this year.

FPB spokesman Phil McCabe observed that:

"I think it's fair to say that last winter's extreme weather conditions caught out many small business owners.

"A lot of small firms struggled to continue trading as employees failed to make it into work, deliveries were cancelled and freezing temperatures caused heating equipment to fail, leaving their premises unusable."

He continued:

"We estimated that last winter's snowfalls were costing smaller businesses across the UK around GBP230 million each day at one point. Obviously, in the current climate, small firms can ill afford a similar expenditure this year so we're urging business owners to think about their contingency plans now to ensure they aren't put out of action by another icy winter."

However, amid the doom and gloom, there are some bright spots.

The extension of small business rate relief at the beginning of the month means that small businesses with rateable values of less than GBP12,000 will receive double their normal rate of discount for a year, with micro-enterprises with turnover below GBP6,000 receiving 100% relief over the same period.

The extension of the tax break, which was announced in the emergency budget delivered earlier this year, has been broadly welcomed by groups representing small businesses, although it has been argued that eligible companies should be automatically granted the discount; currently they must apply for it.

Reports that a number of the UK's major high street banks, including Lloyds, RBS, Santander, HSBC and Barclays are joining forces to establish a new fund, providing at least GBP500mn in equity financing for growing small businesses have also been welcomed, although the relatively small amount pledged by the banks, and their request for a parallel government contribution to the fund have raised both eyebrows and hackles, especially given that some of the participants were the beneficiaries of taxpayer-funded bailouts in the not so distant past.

However, given recent research by IT finance provider, Syscap, which found that despite government initiatives to improve access to financing for SMES, more than a third (38%) of those polled reported that their ability to access bank loans and other financing options had worsened over the past year, any effort towards closing the 'financing gap' should probably be applauded.

In addition to the above, Syscap further found that 14% of the businesses questioned believed that their ability to access bank loans had worsened in just the last three months. Over the same period, however, it stated that 27% of the businesses surveyed reported an increased requirement for finance.

Philip White, Chief Executive of Syscap observed that:

“The majority of businesses will have expected that with the economy in a much better position now than it was this time last year, their ability to borrow from their bank would also have improved.”

“There is clearly a perception that the lending environment is still deteriorating.”

He went on to explain that:

“Because of the legacy of bad debts the big banks are carrying, they are having to reserve large amounts of capital. This is putting the banks in a bind and the net effect is that they cannot meet the growing demand for finance from UK businesses. Small businesses aren’t just making this up – there is a real problem.”

The Syscap research further found that businesses managing to secure loans are still being stung by excessive margins and fees, with 73% of businesses surveyed believing that the lending margins on their loans are too high, only a small improvement on 75% of businesses who thought the same last year.

In addition, 82% of businesses still think that their loan arrangement fees are too high, down only very slightly on the 90% who thought the fees were too high when surveyed last year.

31% of the businesses polled further revealed that they are being forced to delay critical investments because of the difficulties they have had in obtaining finance.

Philip White concluded that: “With worries over a double-dip recession and the private sector now looking to pick up the slack from the public sector, it is vital that funding streams to UK businesses are kept open. Business investment in IT and machinery is fundamental to the recovery and subsequent growth of the economy.”