This finding comes from an analysis using Open Banking data, offering a detailed view of the UK's SME sector. The study highlights the resilience of small businesses but also points to concerning trends requiring urgent attention.

The data from Liberis shows that the average small business in the UK is now dealing with costs £10,000 higher than a year ago, posing a significant challenge to their growth and sustainability. Additionally, the cash reserves built up from Covid Business Interruption Loans are rapidly depleting. As a result, many SMEs are grappling with reduced financial support, with the average bank account balance for SMEs dropping from £16,000 in June 2020 to just £2,000 in July 2023.

Alex Ivison, Chief Risk Officer at Liberis, noted: “Since 2020’s COVID-19 outbreak, the UK economy has faced its most severe inflationary pressures in forty years. While there’s been much focus on the Cost of Living crisis, the increasing Cost of Doing Business has not been as widely discussed.” Ivison further explained: “The rise in expenses varies across sectors. Our findings reveal that small businesses in hospitality are particularly hard-hit, with their average costs more than doubling since 2020 due to tight labour markets, soaring energy prices, and increasing food costs.”

Furthermore, with mainstream lenders reducing credit to small businesses, these entities are under greater financial pressure. Addressing the UK's £22 billion SME funding gap is crucial, given SMEs contribute significantly to the UK's private sector turnover and employment. The Bank of England estimates the current SME funding gap at £22 billion.

On tackling this funding gap, Ivison commented: “Liberis is using Open Banking to provide revenue-based finance more equitably. The data helps us customise our offering to better meet merchants' needs, allowing us to offer timely and fair financial support to underserved merchants, thereby fostering financial inclusion and aiding small businesses in their growth.”