More than one in five SMEs unable to access external finance

More than one in five small and medium sized enterprises (SMEs) were unable to access external finance over the last two years, according to research by Manx Financial Group PLC.

This means over a quarter have had to stop or pause their business activities, due to a lack of capital, and 34% of SMEs are worried their business won’t grow over the next 12 months.

The research found that businesses had been forced to stop expanding into new markets, hiring new workforces and marketing campaigns, with manufacturing, finance and accounting, IT and telecoms the sectors most affected.

Douglas Grant, CEO of Manx Financial Group PLC, commented: ‘The research sadly reveals what we have been observing for some time – that SMEs continue to struggle with accessing finance and that worryingly, this lack of availability will cost them and the UK economy in terms of growth at a time when it is needed the most. The amount of growth that is being sacrificed is however significant and will require new solutions which are designed to address this funding gap.’

The biggest barriers for SMEs looking for external finance were found to be how expensive it was to access (23%), how long the process took (19%) and the lack of flexibility in repayment terms (17%).

Other factors which also affected SMEs were how lenders often didn’t understand the business and that they received poor customer care.

With an effective form of external finance, the people surveyed believe on average that their business could grow by around 17%.

While the Recovery Loan Scheme (RLS) could help businesses to recover from financial impacts of the pandemic, the deadline to apply was passed on the June 30.

SMEs still requiring financial support will need to access alternative forms of lending, as inflation, supply chain issues and the cost of living begins to limit business growth.

Grant added: ‘A sector focused government-backed loan scheme which brings together both traditional and alternative lenders to guarantee the future of our SMEs in struggling sectors, is critical to ensure that opportunities for their growth are not missed.

‘We very much hope this is something that becomes a reality. In the meantime, all SMEs would be well-advised to take stock of their current capital structures and, if appropriate, access fixed term, fixed rate loans to prevent additional exposure to an increasingly volatile lending market.’

Photo by Tim Mossholder