The research from Novuna Business Finance underlines how important access to finance is for the small business sector at a pivotal time for the economy - with many trying to rebuild after the pandemic in the face of spiralling inflation and price rises.

The findings come at a time when gross lending to UK-based small and medium-sized enterprises (SMEs) by the main High Street banks declined 18% year-on-year in 2022, while the sector is already under pressure from proposed Prudential Regulation Authority (PRA) regulatory changes, proposing to remove preferential treatment for SMEs.

The need for finance was greatest among enterprises that anticipated a period of contraction or scaling back (56%), or those that were struggling to survive (85%). Similarly, the findings showed that businesses that had seasonal peaks during the summer (65%) were particularly reliant on securing finance.

By sector, small businesses in the manufacturing (60%) and construction (58%) sectors were most likely to say they are reliant on funding in the next 12 months.

Growth plans at risk

Hiring staff - Looking at the specific areas that were most reliant on securing funding, increasing headcount was the most commonly cited issue. Around a quarter of respondents (26%) said they needed funding to invest in headcount growth.

Offering new products and services – the proportion of businesses that said they needed funding to support new product development was 25%. This peaked in the hospitality (35%) and real estate (33%) sectors.

Investing in new vehicles – just over one and five small businesses (22%) said they would need funding to invest in new vehicles. This peaked in the transport and distribution (52%) and agriculture (42%) sectors.

New market expansion – launching products and services into new markets within the UK (18%) and markets outside of the UK (17%) was also of high priority when it came to securing finance. Businesses in the agriculture sector (23%) were the most likely to be focusing on new UK markets whilst those in the manufacturing sector focusing on markets overseas (27%).

New machinery – around half of businesses in the agricultural sector (47%) and a third of businesses in the manufacturing sector (37%) said they would have to put plans on hold if they were unable to secure funding for new production lines or machinery.

Jo Morris, Head of Insight at Novuna Business Finance commented: “Today’s data highlights the importance of choice in SME lending. Despite the enduring and persistent challenges, confidence amongst business leaders has been resilient. It is a positive sign that so many enterprises have plans to grow their businesses in the next 12 months. Access to finance is key, however, in their ability to enact their plans and retain confidence. This is a critical issue that must be tackled.

“At Novuna Business finance, our simple and competitive funding is designed to fit around the needs of small businesses, helping customers to buy or lease business assets. With an expert team and award-winning services, we can provide access to the finance solution our customers need, and are committed to helping them to develop and grow."