The report confirms that UK employment declined for the second consecutive year and that employment growth is directly linked to a small business’ ability to secure credit.

With traditional financial institutions increasingly moving away from long-term borrowing, many UK small businesses are using credit cards as an alternative. This trend is being compounded by the differing financial strength of financial institutions, and how their costs change in response to monetary policy. This shift is reshaping the borrowing landscape, placing additional financial strain on businesses, looking to access finance to support growth.

The Small Business Annual Index Report, developed in collaboration with leading global economist at the University of Chicago Professor Ufuk Akcigit and his co-authors, reveals that employment among UK small businesses (one–nine employees) fell for the second consecutive year, with 2,200 fewer jobs recorded in the previous 12 months to the end of October 2024. The data underscores the challenges faced by small businesses in accessing affordable credit.

Small business sectors: success stories and challenges

Employment decline: small business employment fell by 2,200 jobs year-over-year, with total employment reaching 4,287,700 jobs.

Sector winners and losers:

• Construction created 7,500 jobs (+1.24%), emerging as the best-performing sector
• Professional services added 6,500 jobs (+1.22%), showing resilience amidst economic challenges
• Information and communication led the decline, shedding 6,700 jobs (-3.79%), followed by wholesale and retail trade (-6,300 jobs, -0.81%)

Regional disparities:

• Wales was the only UK nation with small business employment growth, adding 400 jobs (+0.22%). The other three UK nations all had declining employment
• The North East experienced the fastest decline (-0.31%), with 400 fewer jobs
• The Yorkshire and The Humber region bucked the trend, adding 700 jobs (+0.21%).

The credit card trend

Due to their accessibility, flexibility, and ability to address immediate financial needs, credit cards are a vital source of financing for small businesses. In fact, they are currently the number one source of financing for small businesses in the UK. 27% used a credit card for financing over the past 12 months, whilst only 15% secured a loan to fund their business expenses/growth. When asked about the proportion of expenses charged to credit cards, 33% of UK small businesses are charging more than 25% of their total monthly business expenses to credit cards. 

Mind the ‘income gap’

The Small Business Index Annual Report highlights a strong link between access to credit and employment growth. Small businesses that secured financing in 2024 were able to invest in their workforce and operations, whereas those without access experienced slower growth. However, interest rates and changing lending practices are making traditional loans harder to secure, with the report showing that higher interest rates have had an uneven impact on small businesses.

The banks’ differing levels of exposure to interest rate shock (known as the Income Gap), and the associated impact on small business performance and growth is evident in the report findings. Small businesses working with banks with a higher income gap measure were better able to access lending and had notably higher employment and revenue growth than small businesses working with banks with a lower income gap measure. 

Ufuk Akcigit, a global economist and Arnold C. Harberger Professor of Economics at the University of Chicago says: “The acceleration of small business credit card usage has put owners in a difficult position. While they can cover expenses in the short term, the high interest rates are inhibiting their growth in the long run as businesses focus on paying off past debts rather than investing in the future. Mounting credit card debt poses major risks to both small businesses and the greater economy.”

Financial reporting as a solution

Intuit’s recent Accounting for the SMB Economy report** revealed that 73% of businesses working with an accountant were able to strengthen their financial reporting in 2024, increasing access to affordable financing. In fact accountants and bookkeepers unlocked 11.5% more revenue in small and mid-sized businesses, revealing the transformative impact of professional accounting and bookkeeping services in UK SMBs.

Rob Burlison, Director of International Corporate Affairs at Intuit QuickBooks, comments: "Small businesses are navigating a challenging financial environment where access to affordable credit can make or break their growth potential. Strengthening financial reporting through digital tools, working with trusted advisors, and exploring alternative financing options can help business owners overcome these hurdles."

Supporting growth despite challenges

Ray Wheeler, Owner of Guardtech Cleanrooms, comments: “We probably spend £20,000 up to £50,000 a month on a cashback card, and that gives us some money back that we wouldn't have otherwise ... So that works quite well for us ... Banks and financial institutions have to make money as well. We're all in business … So you have to be realistic … You learn not to dive in rashly. You take your time and assess whether the interest rate is sensible or whether you can get a better deal elsewhere.”

Ben Askins, Co-Founder at Gaia, concludes: “The reliance on credit cards is concerning. Young entrepreneurs get offered the wrong sort of finance, which plugs short term gaps but leads to deeper problems further down the line. If you are looking for finance, ensure you have an accurate and easy to digest Profit and Loss and reporting numbers. Having your ducks in a row displays maturity and adds a level of reassurance to anyone considering you for finance. The second point is the narrative about why you need the financing. Either it is to plug a gap or it is to invest in the growth of the company. Too often people will focus on what they want to spend it on, rather than reassure the lender why it is a good opportunity for them to do this for you. Make sure you cover what they can expect in return and give clear and cohesive details to back this up.”