Funding crunch forces a third of UK SMEs to pause expansion
Nearly a third (30%) of UK small and medium sized enterprises (“SMEs”) have had to stop or pause an area of their business because of a lack of finance over the last two years. This comes amid ongoing economic uncertainty driven by geopolitical tensions and global tariffs and is according to the fourth annual SME research survey commissioned by Manx Financial Group PLC (AIM:MFX), the financial services group which includes, amongst other operating subsidiaries, Conister Bank Limited, Payment Assist Limited, Blue Star Business Solutions Limited and the Business Lending Exchange Limited.
The most common activities that SMEs have been forced to pause or stop because of a lack of financing were hiring personnel, R&D, launching new products, marketing and expanding into new markets.
Manx Financial Group’s research showed the number of businesses that have paused an area of their activity continues to be sizeable (31% in 2024) while one in ten (9%) SMEs that looked to secure external finance and/or capital were unable to access it.
The most popular external finance options for SMEs were secured loans and invoice financing.
The survey also highlighted that the biggest barriers faced by SMEs in sourcing external finance and/or capital were that it was too expensive (33%), that there was a lack of flexibility with repayment terms (28%) and the process took too long (28%). SMEs also cited other barriers such as the fact that the lender did not understand their business (16%).
More businesses are anticipating stagnant growth over the next 12 months – nearly two in five (38%) compared to a quarter (25%) last year and 27% in 2023. However, with appropriate external finance, most SMEs believe they could grow their business by up to 13% in the next 12 months.
Douglas Grant, Group CEO at Manx Financial Group PLC, commented: “Our research highlights a persistent challenge for UK SMEs: 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.
“High borrowing costs, inflationary pressures, and a tightening labour market are compounding the strain. While some firms have shielded themselves with fixed-rate debt, many others are now facing rising costs without a financial safety net.
“As the SME lending landscape evolves, the Labour Government must prioritise targeted measures to unlock credit, boost lender collaboration, and accelerate growth. Despite strong rhetoric, there’s still a gap between ambition and action, leaving both traditional and alternative lenders key to supporting SMEs through economic turbulence and rising fiscal pressures.”