This is according to new research commissioned by Manx Financial Group PLC, the financial services group which includes, amongst other operating subsidiaries, Conister Bank Limited (Conister), Conister Finance & Leasing Limited and Blue Star Business Solutions Limited.

The most common activities that SMEs have been forced to pause or stop because of a lack of financing were hiring personnel, marketing, launching new products, expanding into new markets and R&D.

Manx Financial Group’s research showed that while the number of businesses that have paused an area of their activity has decreased from 40% in 2023, one in ten SMEs that looked to secure external finance and/or capital were unable to access it.

The most popular external finance options for SMEs were short-term business loans and secured loans. The survey also highlighted that the biggest barriers faced by SMEs in sourcing external finance and/or capital were that it was too expensive (34%), the process took too long (25%) and that there was a lack of flexibility with repayment terms (25%). SMEs also cited other barriers such as the fact that the lender did not understand their business (21%).

Over the next 12 months, SMEs believe sales, new market expansion and new product development will be the areas that will see the most growth. Less businesses are anticipating stagnant growth over the next 12 months – just 25% this year compared to 27% in 2023 and 34% in 2022. Indeed, with appropriate external finance, most SMEs believe they could grow their business by up to 29% in the next 12 months, which is a significant increase from 19% in 2023.

Douglas Grant, Group CEO at Manx Financial Group PLC, commented: “Our research reveals a persistent challenge that SMEs continue to face: securing financing remains difficult. This limited access to finance poses serious risks for both SMEs and the broader UK economy, particularly in terms of growth during uncertain times when support is most needed. The economic impact is significant, as SMEs contribute to about half of all private sector turnover in the UK. Innovative solutions are urgently required to address this funding gap.

“As borrowing costs stay high, many businesses are experiencing their own financial crises. This financial constraint, coupled with a potentially unprecedented and volatile environment marked by ongoing geopolitical tensions, multiple elections, a tightening labour market, and persistent cost-of-living challenges, poses obstacles to the prospects of SMEs and national economic growth.

“Although some SMEs have mitigated risks by locking in fixed-rate debt, many others are now struggling with increasing costs without a financial cushion. Government intervention is crucial to support SMEs, which are vital to the UK economy and, for some time, we have been advocating for a permanent government-backed loan scheme tailored to different sectors and incorporating both traditional and non-traditional lenders. Such a permanent scheme has the potential to play a pivotal role in unlocking economic resurgence for numerous companies, thereby sustaining the overall economy – especially as in an uncertain economic environment like the one we see today.”