Barriers to small firms’ access to finance could hold back UK economic recovery

Two-thirds of small companies plan to invest in their business in some form by 2024, but less than half feel they are fully aware of the different types of financing options available to them, new research has found. has gone.

fsb new report, credit where credit is duePulls together findings that paint a concerning picture regarding access to finance for UK small businesses, and calls for action to stop lending gears grinding away – as in the aftermath of the credit crunch of 2007 happened after – which, if history is allowed to repeat itself, would risk undermining the country’s economic recovery.

Three in five small firms have applied for finance over the past five years, although the extraordinary circumstances of the pandemic meant that the proportion of businesses taking out loans – many of them for the first time – increased. Small and medium-sized enterprises are now collectively holding almost £36 billion more in debt than in January 2020, pre-Covid.

Access to finance is vital to the small business sector as a whole, allowing firms to invest and grow. Finance options are also critical to keeping small businesses afloat in choppy waters due to the crippling cost of doing business, skyrocketing energy costs, supply and travel disruptions, and the ever-present scourge of late payments.

However, only two in five small businesses say they find it easy to find answers to their questions on financial applications, with three in ten (29%) saying they thought the applications contained unfair clauses and provisions .

Meanwhile, the success rate of finance applications has declined sharply since the post-Covid loan era, with less than half (46%) of applications being successful in the third quarter of 2022, compared to the pre-Covid success rate of nearly two in three (64%). %) Was. The smaller a business is, the less likely it is that its request for finance will be approved, our research has found.

Interest rates offered to small business customers have also increased, with nearly a third of small firms applying for finance in the third quarter of 2022 offering rates of 10% or more.

FSB National President Martin McTeague said: “Small businesses that cannot access finance are small businesses that are cut off from opportunities for growth and expansion. It is that simple.

“As a country, we cannot afford a repeat of the post-credit crunch scenario, where the withdrawal of finance options crushed the dreams of thousands of entrepreneurs and business owners, leaving them unable to continue and deepened the UK’s economic crisis.

“Many smaller firms are now in a highly precarious position, having taken on debt from the pandemic, the Bank of England raising the base rate, and funding options becoming scarce and expensive.

“Our report draws together a variety of aspects that add together a worrying picture of potential catastrophe if the situation is allowed to drift.

“Fortunately, there is much that can and should be done by the government and other bodies to improve the funding landscape for small firms, getting productive capital into businesses with enormous potential for growth.

“Reversing the recent, disastrous decision to cut R&D tax credits will send a strong signal that the government is listening to what small firms need, and is supporting the deep well of innovation and enthusiasm that start-ups, entrepreneurs and and exist among small businesses alike.

“The recently announced consultation on late payments – a dead hand around the throats of millions of small firms, cutting off their cash ‘oxygen’ and causing huge amounts of unnecessary and unethical stress – is a positive step, however we know What should have been done: Require audit committees of large corporates to publish details of payment practices in their supply chains in their annual reports. What is stopping the government from acting now, rather than through a months-long consultation period?

“Finally, small companies are looking for signs that they will not be punished for looking to invest and expand. We have set out a comprehensive program that will transform small businesses’ finance options, spur economic growth and encourage entrepreneurship.” It is now up to the government to move from words to deeds, channeling vital funds to small businesses that provide them with new products, new jobs and new premises, new hope for recovery amid economic downturn.

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