We re constantly being told that the UK is basking in the glow of a benign economy, but with the business recovery sector currently booming, that statement doesn't quite ring true.

The British Bankers Association estimates that the main UK retail banks have around 3.1 million small business customers with less than £1m turnover, and it's here where the problems lie.

Ken Stubbs, business recovery partner at BDO, says: 'I work with a number of the main banks and they've got concerns. It's something that I've termed a degree of resilience as to whether they can withstand an economic downturn - some have very little. The companies that go belly-up easiest are the ones with the highest exposure to their market.'

Credit bonanza

Banks have been criticised for throwing credit at wide-eyed small businesses, which can't quite believe the bonanza that they are enjoying. The experts pinpointed debt exposure to borrowing as being a real problem, as private equity-backed businesses get 'covenant-light' non-amortising debt, as well as the traditional debt arrangements.

'It's an incredible market,' Stubbs says. 'There is so much opportunity for leveraged borrowing, but easy borrowing obscures operational problems.'

Peter Spencer chief economic adviser to Ernst & Young's ITEM club warns that although the economic salad days seem to be in no danger of disappearing, the access to cheap debt could be reined in. 'Small businesses may be highly dependent on bank credit, but there may be a rise in the price and a reduction in availability of such credit. It's at an exceptional level, but it may not last.'

Industry experts are endlessly hammering home the message that cash is king if businesses are to keep their heads above water - and for good reason: the minnows of small business are constantly left trailing in the wake of big business whales when it comes to late payment.

'It continues to be a big problem in terms of working capital. Waiting for a big customer to pay, while still needing raw supplies to keep production going is the biggest issue and that cycle will get worse. It comes down to how you build your relationships. Sophisticated supply and payment agreements should definitely be in place,' says Stubbs.

Discretionary expenditure is something that is a boon in the good times, but a millstone when the economy goes south. Nick Hood at Begbies Traynor says: 'There are some sectors that are really at risk, especially the printing, construction and leisure sectors.'

The commentators advise businesses to ensure that their operations are as efficient and sleek as possible. Undertake critical reviews of capital expenditure, take a close look at debt gearing and operational performance - cost reduction where possible even in a benign company has to be carried out.

Taking a good look around the balance sheet to see if there's any surplus assets you can sell is a good first step if the economy starts to plunge, especially within the at-risk manufacturing, distribution and transport businesses.

The experts believe that companies have learned a lot of lessons from the past and the economy is a lot less volatile than it was in 1992, but it can still be unforgiving if the situation changes. 'At the moment, the rises in interest rates appear to be supportable. It's very difficult to think that the wheels will be coming off the wagon, but if inflation begins to take-off and the shocks get passed along into higher wage demands, then all bets are off,' warns Spencer.