More than half of small businesses would have to put their plans on hold if they were unable to secure finance, with access to finance becoming a “critical issue”, says a study.
Research by Novuna Business Finance says reliance on finance was greatest among small businesses in the agriculture (63%), media (60%), and manufacturing (59%) sectors. Similarly, businesses anticipating a period of contraction or scaling back (74%) or those struggling to survive (74%) were particularly reliant.
Novuna says the findings come at a time when data from the Impact Investing Institute shows that the success rate for SME applications for bank loans dropped from 80% in 2018 to about 50% last year, while a House of Commons Treasury select committee found that a “difficult environment” for small and medium enterprises risks ‘disincentivising risk-taking, innovation, and potentially, growth”.
The research looked at the following areas:
- Hiring staff – looking at the specific areas most reliant on securing funding, increasing headcount was the most commonly cited issue. Of those reliant on finance, a quarter (25%) said they would not be able to hire more staff if they could not secure finance. This was particularly the case in the education (47%) and media (32%) sectors.
- Launching new products and services – the proportion of businesses reliant on finance that said they would not be able to launch new products and services without funding was 23%. This peaked in the manufacturing sector at 43%, a proportion more than four times higher than a year ago (10% in Q2 2023).
- Bigger offices – For the first time in Novuna’s data series, moving to a bigger location was among the top priorities for small businesses relying on investment, reflecting a trend of companies ordering staff to return to the office. Of the businesses reliant on finance, a fifth had plans to expand to a bigger office that required finance, with this peaking in the media sector at 25%.
- Marketing campaign – A similar proportion (21%) said they would be unable to run their marketing/advertising campaigns without securing capital. This was particularly the case for businesses who said they were struggling to survive (30%).
- Upgrade IT equipment – Modernising their IT capability and purchasing new computers and IT equipment featured on the priority list for 17% of small business owners. This had increased from 11% a year ago and is particularly significant in the legal (35%) and retail (33%) sectors.
Jo Morris, Head of Insight at Novuna Business Finance said:
“Access to finance is a lifeline for UK small businesses, yet many are finding this lifeline increasingly out of reach and struggling to manage their cash flow as a result. The ability to acquire new machinery or upgrade technology – importantly at the time it is needed – is vital to any small business’s growth and profitability. Any barriers to this risk not just stifling the future of an individual business but will also have a knock-on effect on the economy at large.”
Percentage of small businesses that need finance to execute growth plans by sector, according to the report:
- Agriculture 63%
- Media/ marketing/ advertising/ PR & sales 60%
- Manufacturing 59%
- Other 57%
- Education 56%
- Hospitality and leisure 56%
- Transportation & distribution 56%
- Construction 53%
- IT & telecoms 51%
- Legal 51%
- Medical & health services 49%
- Retail 47%
- Real estate 46%
- Finance and Accounting 41%
