The “Business of Recovery” is now a reality with many firms reporting increased confidence but unless businesses rethink their approach to funding and finance the road out of the recession could be rocky, according to a new report out today from HSBC Commercial Banking.

And with history indicating that more businesses fail in the early days of a recovery than in a recession, the Business of Recovery report reveals that today’s businesses could become too short-termist and self-financing, with just 15 per cent of UK-based companies currently seeking external investment.

According to the report - undertaken by Delta Economics, which questioned over 2,100 small businesses and interviewed 30 business and economic experts - companies are set to come out of the recession leaner and fitter.

By restricting cash flow, reducing costs, drawing on their own resources and restructuring, it highlights that strong gains have been made in business models for the future. But it warns that if companies continue to tighten their grasp on the purse strings at the expense of investment, they could unintentionally hamper their recovery and miss out on opportunities to grow and prosper.

The report investigated motives for borrowing and found the majority of businesses are saying they ‘don’t need money’ (80 per cent) because they are tightening their belts and running down their own resources or have put money in themselves (53 per cent).

According to the research, two thirds of respondents are confident in their ability to secure bank finance and felt their bank would be likely to extend current lending facilities - just 17 per cent said they weren’t seeking finance because “banks weren’t lending”. The European Central Bank concurs, stating that 70 per cent of businesses trying to access finance across Europe are currently able to do so.

HSBC Commercial Banking is urging businesses to start taking a longer-term approach, highlighting that a third of businesses (32 per cent) are saying access to finance is likely to be a key challenge in 2010 but 85 per cent aren’t currently seeking external finance. The report predicts that if they don’t act now they won’t have the resources in place to weather the recovery.

According to the report, when companies do seek external investment, the main reasons behind it are to finance growth (81 per cent), working capital (70 per cent) and investment (60 per cent). Far fewer are looking for finance to manage their current money situation with 43 per cent seeking money to ease cashflow, 12 per cent to repay debts and nine per cent to consolidate debts. >/p>

The key types of finance being sought are loans (51 per cent), a bank overdraft (22 per cent) and grants (16 per cent).