Two out of five SMEs have had to shut down or pause an area of their business due to lack of funding over the past two years.
This is according to new research from Manx Financial Group, the financial services group.
Manx Financial Group research showed that the most popular external financing options for SMEs were short-term unsecured business loans followed by advanced secured and cash loans. The survey also highlighted that nearly one in seven SMEs needing external financing and/or equity capital are unable to access it.
The biggest barriers faced by SMEs in obtaining external financing and/or capital were that they are expensive, the process takes a long time (36%) and the lack of flexibility in terms of repayment. SMEs also cited other barriers such as the fact that the lender did not understand their business and that they took poor customer care.
The most common activities that SMEs were forced to pause or stop due to lack of financing were marketing, expanding into new markets, hiring the right people to open offices or news websites, and research and development.
Over the next 12 months, SMEs believe that sales, expansion into new markets and hiring will be the areas that will see the most growth. Despite the decline from last year, more than a quarter of SMEs are concerned that their business will not grow at all in the next twelve months. However, with proper external financing, most SMEs believe they can grow their business by up to 19%.
Douglas Grant, CEO of Manx Financial Group PLC, commented: “Unfortunately, our research reveals an ongoing problem we have seen for a long time: SMEs continue to face difficulties in obtaining financing. It is worrying that this limited access will lead to dire consequences for Both SMEs and the UK economy in terms of growth, particularly during much needed uncertain periods.The extent of the loss in economic growth is significant given that SMEs account for around half of all UK private sector turnover.We need more An innovative measure to address this funding shortfall.
With the cost of borrowing increasing, many businesses are facing their cost of living crisis. While many small and medium-sized businesses were proactive by confining their debt to fixed rate structures, it is now too late for others who have borne the brunt of spiraling costs without a financial safety net. The government must step in to mitigate the impacts on small and medium businesses, which are the backbone of the UK economy.
“We have been advocating for a sector-focused, government-backed permanent loan scheme that includes both traditional and non-traditional lenders to secure the future of our SMEs. With growing concerns about the future of the economy, the importance of implementing a permanent scheme cannot be overstated, which can act as a critical factor in preserving On the economic recovery, thus determining the survival of many companies.