Resistance to relying too much on bank lending may be helping southwest and South Wales entrepreneurs to survive the worst of the economic downturn.

The region has plenty of businesses with sound finances and competent managers who are set fair to weather the turbulence, according to advisers and lenders.

Those businesses that have increased their borrowing, meanwhile, will be trying to avoid any increased exposure to debt, says Stephen Gratton, managing partner at Ernst & Young’s Bristol and Exeter offices.

“They will be doing everything they can to maximise cash flow rather than go back and renegotiate with their banks, as they are concerned that the terms will be too difficult and expensive.”

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Entrepreneurial businesses are often not the risk-takers they are perceived to be, he adds. The business people he sees in the southwest tend to be naturally cautious. “If it’s too expensive to use other people’s money, then they won’t do it.”

Many are also inclined to shy from private equity. Sharing ownership doesn’t come naturally to a lot of entrepreneurs, he believes.

Sam Roden, head of commercial business at Bank of Scotland Corporate for the southwest, says most entrepreneurs in the region are following a sensible course. “There is very little speculative investment. People are investing where they’ve got secure revenue streams and are certainly still looking to grow, but they’re not taking a risky position to do so.”

Everything comes down to sound business principles, says Roden. “In times of economic slowdown, the absolute fundamentals of management come to the fore. A strong management team, which is controlling the business and keeping close links with customers, will certainly take market share.”

Firms that plan to expand capacity, based on a solid order book, are not reining back, he says. “Have people stopped planned expansion or expenditure? Certainly in commercial property, projects have been mothballed. But we’ve not seen committed projects cancelled. If a business has secured a new contract, they will expand.”

While private equity does play a role, it is increasingly becoming the preserve of bigger players. Figures from the British Private Equity and Venture Capital Association report on UK investment, released in July, show the southwest attracted only 2% of UK private equity investment in 2007, compared with 5% in the previous year and 7% in 2005.

Wales also saw a decrease, to 1% in 2007 and 2006, down from 7% in 2005.

John Wakefield, director of corporate finance at Blue Oar Securities, says that for smaller businesses pursuing equity, the path will not be easy. “The lower you go down the food chain, to SMEs and owner-managers trying to raise development capital or to replace their initial debt, when you look at the available sources the options become more limited.”

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