Lack of confidence in external finance is costing UK SMEs £54Bn

UK SMEs are missing out on an estimated £54 billion in revenue due to a lack of confidence in accessing external finance, according to new research from broker-lender Portman Finance Group.

Portman’s report, The Cost of Misconfidence, surveyed 2,000 SMEs across the UK. It found that 30% of businesses have missed a growth opportunity because of a lack of external finance, with affected firms estimating an average revenue loss of more than £73,000. When extrapolated across the wider UK SME population, those missed opportunities amount to an estimated £54 billion in lost revenue – equivalent to around 2% of UK annual GDP.

Among businesses that considered taking out external finance, four in ten either proceeded with only part of the funding they originally sought or did not proceed at all. Driving this is:

• Lack of trust: Over half (52%) don’t have complete or high trust in high street banks for business finance advice, with trust lower still in finance brokers (43%), challenger banks (41%) and venture capitalists (40%). More than one in five (21%) said that a lack of trust in lenders was the primary reason for not taking on external finance
• Market confusion: More than half (53%) of SMEs say the business finance market is confusing, while two-thirds (66%) say they would be more likely to borrow if they better understood their options
• Fear of rejection: One in five SMEs report that fear of rejection discouraged them from applying in the first place

“UK SMEs are highly ambitious and understand the role that finance can play in helping them realise these ambitions, but too many are putting investment plans on hold because the market feels confusing, untrustworthy, and have a fear of debt altogether, says Alex Read, Founder and Chief Executive Officer at Portman Finance Group. “This is having a very real impact on the UK economy. Behind the £54 billion figure are thousands of businesses delaying expansion, postponing investment in technology, holding back recruitment or deciding against buying new equipment, all of which drives business and economic growth which is much needed in the UK, and high on the political agenda.”

Additional barriers to accessing finance include:

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• Geopolitical conflict: Nearly eight in ten (79%) say geopolitical conflict has delayed decisions about taking on external finance
• High costs: Nearly half (48%) cite high interest rates as the primary reason for not proceeding or fully proceeding with a loan application, with 32% not wanting to risk financial stability

Read added: “This isn’t about encouraging businesses to borrow more, but helping them make more informed decisions. We are calling on brokers, lenders, and banks to do more to educate SMEs and help businesses understand which options are right for them. That means taking a more consultative approach – understanding what a business is trying to achieve, explaining the options available, and being honest about what is and isn’t suitable. If we can close that confidence gap then we have a real opportunity to unlock investment and provide a major boost to the UK economy.”