75%
SMEs are looking to grow their business in the next 12 months
74%
SMEs are not well informed about early stage equity
69%
SMEs’ lack of awareness of finance options available remains the biggest barrier to demand
84%
State gaps in finance supply for SMEs, regardless of their development stage
72%
SMEs will defer growth plans if they are unable to get finance through traditional routes
74%
SMEs are not well informed about early stage equity
63%
SMEs are not well equipped to reduce their debt burden in the next 12-18 months
Findings presented are based on an Intermediary Survey conducted by the UK Network Team Oct-Dec 2024 with 758 responses from intermediaries who engage with SMEs in the UK. The UK Network Team has a local expert based in every English region and Devolved Nation and the team's role is to strengthen stakeholder relationships across the UK to help SMEs access finance.
Summary of key findings across the UK
- As was the case in the 2023 survey, the awareness of finance options within smaller businesses remains low (69% now said to have a lack of awareness, this is up from 60% in 2023).
- Linked to this, and compounding the concern, is that 72% will defer their growth plans if they are unable to obtain finance via their traditional routes according to our respondents, however 75% are looking to grow their businesses in the next 12 months
- Apart from awareness (69%), access to the supply of finance (47%), the cost of finance (39%) and an aversion to the cost of finance (36%) were also cited as barriers for demand across the UK.
Please note the intermediary survey sample size for each region is relatively low, and therefore findings should be treated with caution. Data for each region is based on the survey information provided by intermediaries on where the SMEs they engage with operate.
Introduction to the research
About the research
This report presents findings from an intermediary survey undertaken between October and December 2024. Where figures in charts do not add to 100%, this is due to rounding of percentages, exclusion of responses (e.g. ‘Don’t know’) or because the question allows more than one response.
About the sample
Intermediaries taking part in the research included accountants, lawyers, business support specialists and brokers. Data for each UK nation or region is based on the survey information provided by intermediaries on where the SMEs they engage with operate. Sample sizes vary across UK nations / regions, and findings should be treated as indicative.
SME demand for finance
Lack of awareness of finance options remains the biggest barrier for demand for finance
- Lack of awareness of finance options available remains as the top barrier to finance (*2023 SME Intermediary Research: 60%)
- ‘Lack of awareness’ is even higher in some nations and regions of the UK (North West 71%, Scotland 75%, West Mids 78%)
- For some nations and regions of the UK ‘Aversion to taking on finance’ and ‘Access to supply of finance were two of the top three barriers
Three quarters of businesses that intermediaries are working with are looking to grow in the next 12 months
Intermediaries thought SMEs were not well-informed about equity or alternative finance
How well-informed are SMEs about finance options?
- Smaller businesses are generally not well informed around early-stage equity or growth stage equity (77% and 80% according to our intermediaries)
How informed SMEs were about early-stage equity varies across different UK nations and regions
SMEs in nations or regions that intermediaries believe are well-informed about early stage equity (%)
Two thirds of UK intermediaries thought that SMEs are not well equipped to reduce their debt burden
How equipped are small businesses to reduce their debt burden over the next 12-18 months %?
Financial institutions
Most UK intermediaries agreed there were gaps in finance supply for SMEs regardless of development stage
Are there gaps in the supply of finance for small businesses in this region or nation?
- Supply is said to be challenged for finance with 84% reporting gaps regardless of business development stage. The figure rises to 90% for start-ups demonstrating that most intermediaries think Start-ups need more financing.
Sectors most likely to be impacted by gaps in finance supply
Which sectors do you think are most likely to be impacted when you identified gaps in the supply of finance for small businesses in your region or nation? Percentage of respondents selecting the option.
- The Retail and Wholesale, Manufacturing and Hospitality sectors feature heavily across the UK in terms of being the most impacted by these gaps.
Over half of UK intermediaries believed there is not adequate finance for start-up businesses
Is there adequate finance support for those looking to start their own business?
Credit appetite and debt burden worries
Nearly half of financial institutions approached by smaller businesses are reported by respondents to be showing reluctance to provide finance. This, alongside an aversion to take on additional debt/risk by businesses, are seen as the biggest reasons for smaller businesses not taking on external finance. Perhaps as a result, our survey respondents suggest that 63% of smaller businesses are not well equipped to reduce their debt burden in the next 12-18 months.
Anecdotally, the use of credit cards and higher cost short term lending was indicated by our respondents.
Driving action on decarbonisation when investing
Respondents were clear that the route to driving decarbonising investments from smaller businesses most likely to succeed was tax incentives. Nearly half (48%) cited that as the best action government could take.
Other notable potential actions were extended and flexible repayments loans (15%) and lower loan rates for energy efficient upgrades (14%). However, decarbonisation is not said to be a current priority, respondents commented that initiatives to motivate small businesses to decarbonize must align with their primary concerns of financial stability and growth to be effective.
Definition of terms
Alternative funding sources
Small businesses have more options for raising equity capital. In addition to traditional sources like venture capital and angel investors, crowdfunding and peer-to-peer lending platforms have gained prominence, allowing small businesses to access a broader investor base.
Brexit implications
The UK's exit from the EU brought changes to trade regulations and affected some small businesses with interational operations, leading to adjustments in their financial strategy
Digital transformation
Small businesses increasingly adopted digital tools and platforms for their financial operations, from online banking and accounting software to e-commerce solutions. This has also made it easier for small businesses to connect with potential equity investors, pitch their ideas and manage equity transactions.
Economic challenges
The financial ecosystem for small businesses faced fluctuations in the economy with challenges related to uncertainty, access to credit, and changing consumer behaviour
Fintech lending
The rise of fintech companies has offered alternative lending options for small businesses, providing easier access to financing outside of traditional banks.
Government initiatives
The UK government introduced various initiatives to support small businesses, including the Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS) which offer tax incentives for investors in small businesses, as well as loan schemes and grants, to make small businesses more attractive for equity investment and to help businesses during economic challenges.
Increased competition
Small businesses had more choices in terms of financial services, as traditional banks faced competition from digital banks, fintech companies, and non-bank lenders.
Open Banking
Open Banking initiatives began to benefit small businesses by enabling them to share their financial data securely with financial service providers to access tailored financial products.
Regulatory changes
Regulations aimed at protecting small businesses and enhancing transparency in financial dealings were introduced, including the Payment Service Directive (PSD2) and MiFID II
Supportive ecosystem
Incubators, accelerators and business support organisations have increased in prominence, offering small business guidance, mentoring and networking opportunities for those seeking equity investment.
Sustainability and ESG Focus
Small businesses are increasingly aware of Environmental, Social and Governance (ESG) considerations and responsible business practices and investors are interested in small businesses with a strong ESG focus.
Small Business Finance Markets 2024/25
Our Small Business Finance Markets 2024/25 report highlights the role of finance in driving innovation across the UK’s small business population and in supporting small businesses to provide solutions to achieve the UK’s net zero targets.