Smaller British businesses scale back on employment and expansion initiatives due to decreasing financial resources
Struggling to keep your small business afloat? You're not alone. A third of smaller UK firms have downsized or shut down parts of their operations in the past two years due to a lack of financing, research indicates.
The increase in borrowing costs, with interest rates skyrocketing since 2022, has left many small businesses struggling to secure funding without onerous terms. According to YouGov data analyzed by Manx Financial Group, 30% of UK small- and medium-sized enterprises (SMEs) have had to decrease their activities.
Sectors most likely to face cuts include hiring, research and development, product launches, marketing, and market expansion efforts since 2023. A staggering 38% now anticipate a period of stagnation over the next year, up from 25% in 2022.
Yet, "most" SMEs believe they could grow by up to 13% over the next twelve months if they had access to the right external finance, Manx reports. However, nearly a tenth of SMEs haven't been able to secure external financing despite trying. High costs and inflexible repayment terms are the major barriers to borrowing, according to 33% and 28% of firms, respectively.
Small business owners are frustrated with the limited financing options available. The UK Government defines SMEs as organizations with fewer than 250 employees and a turnover of less than €50 million (£42.4 million) or a balance sheet total less than €43 million.
In an attempt to support smaller firms, the Government raised the limit at which businesses start paying employer national insurance from £5,000 to £10,500 in December 2022. This means 865,000 employers will pay nothing in national insurance contributions next year, as stated by the Government.
To unlock credit, boost lender collaboration, and accelerate growth for SMEs, Manx chief executive Douglas Grant urges the Government to focus on targeted measures. The Government's expectations of holding the base rate at 4.25% in the immediate future suggests small businesses may continue to struggle with soaring borrowing costs.
Other challenges include negotiating inflexible repayment terms, navigating lengthy processes, and dealing with lenders who lack understanding of SME needs. Despite these obstacles, Grant emphasizes that restricted access to finance poses a significant threat not only to small businesses' survival but also to the broader UK economy.
With SMEs generating around half of all private sector turnover, it is crucial to address the financial gap and preserve national growth, especially during volatile and uncertain times. While some firms have secured fixed-rate debt, many others are facing rising costs without adequate financial protection.
The UK government has proposed several measures to help small businesses access financing:
- The Growth Guarantee Scheme (GGS) provides a 70% government-backed guarantee for accredited lenders lending to small businesses, supporting facility sizes up to £2 million.
- The government has allocated £100 million in SME Accelerator Loans to support smaller firms in growing and investing.
- The National Housing Delivery Fund provides funding tools for SME builders, including support for revolving credit facilities.
Regulatory adjustments have also been proposed to minimize disruptions to SME lending and maintain competitiveness. In addition, Innovate UK and UK Export Finance schemes offer support for SMEs developing new products and facilitating exports. These targeted measures aim to create a conducive environment for SMEs and enable these crucial organizations to navigate the challenges presented by rising borrowing costs.
- Small businesses might consider exploring alternative sources of finance, such as mortgages, insurance, and personal-finance investments, in addition to traditional banking options.
- To boost growth and preserve national growth during uncertain times, SMEs should be encouraged to invest in their businesses, whether it's hiring new talent, conducting research and development, or expanding market efforts.
- By seeking financial advice and understanding the available schemes, such as the Growth Guarantee Scheme, SME Accelerator Loans, and the National Housing Delivery Fund, small business owners can navigate the challenges of securing financing and positively impact their business's future.
- With SMEs generating a significant portion of the UK's economy, it's essential for both the government and lenders to work collaboratively to address the financial challenges these businesses face, ensuring the long-term sustainability of these important organizations.
