Nearly a third of smaller UK firms have paused or axed parts of their businesses over the last two years in response to a lack of financing, research suggests.
The cost of borrowing has soared since the Bank of England began hiking interest rates in 2022 and many small businesses are unable to obtain financing without shouldering crippling terms.
YouGov data analysed by Manx Financial Group suggests 30 per cent of UK small- and medium-sized companies (SMEs) have been forced to cut back.
Areas most likely to be paused of cut back include hiring, research and development, product launches, marketing, and market expansion efforts since 2023.
Some 38 per cent now anticipate stagnation over the next year, up from 25 per cent in 2022, though ‘most’ believe they could grow by up to 13 per cent over the next 12 months if they had access to the right external finance, according to Manx.
Just under a tenth of SMEs have been unable to secure external finance despite trying, with 33 per cent of firms citing high costs as the major barrier to borrowing.
Small business owners frustrated by lack of financing options
The UK Government defines SME as an organisation with fewer than 250 employees and a turnover of less than €50million (£42.4million) or a balance sheet total less than €43million.
In efforts to boost smaller firms, the Govvernment raised the limit at which businesses start paying employer national insurance from £5,000 to £10,500 in December.
This means 865,000 employers will pay nothing in national insurance contributions next year, according to the Government.
But Manx chief executive Douglas Grant said the Government ‘must prioritise targeted measures to unlock credit, boost lender collaboration, and accelerate growth’.
And SMEs are unlikely to see a substantial reduction in borrowing costs anytime soon.
The Bank of England is expected to hold base rate at its current level of 4.25 per cent next week as concerns about resurgent inflation outweigh signs of economic deterioration.
However, current market pricing suggests the rate could fall as low as 3.75 per cent by year end with two more cuts of 25 basis points each.
Other factors cited by firms struggling to borrow include inflexible repayment terms, lengthy processes and lenders’ poor understanding of SME needs.
Grant said: ‘Accessing finance remains difficult, and this funding gap threatens not only their survival but also the broader UK economy.
‘With SMEs generating around half of all private sector turnover, limited access to credit is a serious drag on national growth, especially during such volatile and uncertain times.
‘While some firms have shielded themselves with fixed-rate debt, many others are now facing rising costs without a financial safety net.’
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