SMEs under pressure: rising costs and inflation remain top concerns

SMEs are increasingly facing financial pressure as sustained price rises and the high cost of living take their toll, according to new research from Shawbrook.

Almost eight in ten (78%) of SMEs are worried about inflation and the cost of living, an increase from 69% in 2024, according to Shawbrook’s latest research among senior decision-makers.

The rising cost of running their business is a primary concern for 76% of SMEs, with three-quarters (75%) of decision-makers listing economic uncertainty as a key worry. While the rate of inflation has gradually decreased from its peak of 11.1% in October 2022, business costs remain high.

The cost of borrowing is another major worry for SMEs, with more than two-thirds (67%) expressing concern about interest rates, and over a quarter (27%) being very concerned. With inflation rising again, expectations suggest that rates may not decrease as quickly as originally anticipated.

Access to funding is also a growing challenge for SMEs, with over half (56%) expressing concerns about securing the right funding for their business. Larger businesses (those with 100-249 employees) are more likely to seek funding in the next 12 months, with a quarter (26%) planning to apply for loans. However, SMEs as a whole are typically hesitant to take on debt in the current climate, with less than a fifth (19%) planning to apply for a loan or new line of funding.

This caution regarding funding appears at odds with many SMEs’ priorities for the next year. Nearly half (47%) of SMEs are focused on managing costs, which will be their biggest priority. Financing options that help SMEs manage cash flow, such as invoice financing or asset-based lending, can be particularly useful for those looking to balance their external costs.

Neil Rudge, Chief Banking Officer, Commercial at Shawbrook, commented: “After a difficult few years, the challenges for SMEs are far from over.

“Outgoings have increased significantly, and with inflation rising again and additional costs such as the upcoming NIC hike, managing these expenses will remain critical. Finance can play a crucial role in helping businesses manage their cash flow.”

“However, there is optimism. Three-quarters of SME owners are confident about their business prospects. For those in a position to pursue growth plans, working with a specialist finance partner who understands their business and can offer tailored solutions will be essential to supporting growth during these uncertain times.”