Half of SMEs need finance

Access to finance is becoming a critical issue for UK small businesses, with new research finding that more than half (53%) would have to put their plans on hold if they were unable to secure finance. The study by Novuna Business Finance underscores the importance of access to finance for the small business sector at this pivotal time for the economy.

The findings come at a time when data from the Impact Investing Institute shows that the success rate for SME applications for bank loans dropped from 80 percent in 2018 to about 50 percent last year, while a House of Commons Treasury select committee found that a “difficult environment” for small and medium enterprises risks ‘disincentivising risk-taking, innovation, and potentially, growth”.

Reliance on finance was greatest among small businesses in the agriculture (63%), media (60%), and manufacturing (59%) sectors. Similarly, businesses anticipating a period of contraction or scaling back (74%) or those struggling to survive (74%) were particularly reliant.

Growth plans at risk included:

• Hiring staff – looking at the specific areas most reliant on securing funding, increasing headcount was the most cited issue. Of those reliant on finance, a quarter (25%) said they would not be able to hire more staff if they could not secure finance. This was particularly the case in the education (47%) and media (32%) sectors.
• Launching new products and services – the proportion of businesses reliant on finance that said they would not be able to launch new products and services without funding was 23%. This peaked in the manufacturing sector at 43%, a proportion more than four times higher than a year ago (10% in Q2 2023).
• Bigger offices – for the first time in Novuna’s data series, moving to a bigger location was among the top priorities for small businesses relying on investment, reflecting a trend of companies ordering staff to return to the office. Of the businesses reliant on finance, a fifth had plans to expand to a bigger office that required finance, with this peaking in the media sector at 25%.
• Marketing campaign – a similar proportion (21%) said they would be unable to run their marketing/advertising campaigns without securing capital. This was particularly the case for businesses who said they were struggling to survive (30%).
• Upgrade IT equipment – modernising their IT capability and purchasing new computers and IT equipment featured on the priority list for 17% of small business owners. This had increased from 11% a year ago and is particularly significant in the legal (35%) and retail (33%) sectors.

Jo Morris, Head of Insight at Novuna Business Finance commented: “Access to finance is a lifeline for UK small businesses, yet many are finding this lifeline increasingly out of reach and struggling to manage their cash flow as a result. The ability to acquire new machinery or upgrade technology – importantly at the time it is needed – is vital to any small business’s growth and profitability. Any barriers to this risk not just stifling the future of an individual business but will also have a knock-on effect on the economy at large.”