SMEs under pressure: rising costs and inflation top business concerns
SMEs are increasingly coming under financial pressure as sustained price rises and high cost of living take their toll according to new research from Shawbrook.
Nearly eight in ten (78%) of SMEs are worried about inflation and the cost of living, according to Shawbrook’s latest research amongst senior decision makers, an increase from 69% in 2024.
SMEs are particularly concerned about the rising cost of running their business (76%), with three quarters (75%) of decision makers listing economic uncertainty a key worry. While the rate of inflation has slowly reduced since its peak of 11.1% in October 2022, costs for businesses remain high. This combined with CPI rising to 3% in January 2025, once again above the Bank of England’s target of 2%, will have sparked fears that this challenging period is far from over.
The cost of borrowing is also weighing on SME’s minds, with more than two thirds (67%) saying they are concerned about interest rates, and over a quarter (27%) saying they are very concerned. With inflation rising, expectations are that rates may not be reduced as quickly as had been originally predicted or hoped for.
Access to funding is also a growing challenge to SMEs with more than half (56%) saying they are worried about securing the right funding for their business. Larger businesses (those with 100-249 employees) were more likely to have plans to seek funding in the next 12 months, with a quarter (26%) planning to apply for loans. However, SMEs overall were typically hesitant to take on debt in the current climate with less than a fifth (19%) overall planning to apply for a loan or new line of funding.
This reticence to seek funding could be seen as at odds with many SME’s priorities for the next year with nearly half (47%) of SMEs saying that managing costs was their biggest priority for the next year. Financing options that help SMEs to manage cash-flow, such as invoice financing or asset based lending, can be particularly helpful for SMEs looking to smooth out their external costs.
Neil Rudge, chief banking officer, Commercial at Shawbrook comments: “After a challenging few years, SMEs still face significant pressure as outgoings continue to rise. With inflation projected to increase again later in 2025 and additional costs like the upcoming NIC increase on the horizon, managing cash flow will be crucial. Finance can play a key role in helping businesses navigate these pressures.
However, there’s optimism – three-quarters of SME owners remain confident about their business prospects. For those in a position to pursue growth, working with a finance partner who understands the unique challenges and who can provide flexible solutions can make a real difference in staying resilient through uncertain times. But many business owners may not realise the range of options available to them. Specialist banks go beyond the standard offerings, taking the time to understand each business’s unique needs and challenges. With tailored solutions and a more personal approach, the support can be more flexible and responsive than traditional financial institutions.”