One in five SMEs that needed external finance were unable to access it

1st July 2022

More than one in five (22%) small and medium sized enterprises (SMEs) that needed external finance and/or capital over the last couple of years were unable to access it according to research by Manx Financial Group.

Over a quarter (27%) have had to stop or pause an area of their business because of a lack of finance.

The research showed that the biggest barriers faced by SMEs in sourcing external finance/and or capital were that it was too expensive (23%), the process took too long (19%) and that there was a lack of flexibility with repayment terms (17%). SMEs also cited other barriers such as the fact that the lender didn’t understand their business (16%) and that they received poor customer care (10%).

The research also revealed that SMEs have been forced to pause or stop activities such as expanding into new markets, hiring the right personnel and marketing, because of lack of financing. Manufacturing, Finance & Accounting, Retail and IT & Telecoms were the sectors that were affected the most because of a lack of external finance and/ or capital.

Over the next 12 months, nearly two in five (38%) SMEs believe Sales will be the biggest areas of business that will see growth followed by recruitment (19%), new product development (18%) and new market expansion (17%).

The research also highlighted that a third (34%) of SMEs are concerned that their business will not grow in the next 12 months. However, with appropriate external finance, SMEs on average believe their business could grow by around 17%.

Douglas Grant, CEO of Manx Financial Group said “The research sadly reveals what we have been observing for some time – that SMEs continue to struggle with accessing finance and that worryingly, this lack of availability will cost them and the UK economy in terms of growth at a time when it is needed the most. The amount of growth that is being sacrificed is however significant and will require new solutions which are designed to address this funding gap.”

On 6th April 2021 the Recovery Loan Scheme (“RLS”) was launched. A new Government-backed initiative designed to help facilitate businesses’ recovery and growth after the disruption caused by Covid-19, allowing firms of any size and sector to apply for funding of up to £10 million from accredited lenders. Conister was approved in August 2021 as a British Business Bank accredited lender for the RLS. It enabled Conister to extend the support it has provided to SMEs throughout the Covid-19 pandemic. The scheme deadline is today (30th June) meaning capital-starved SMEs, still recovering and adapting to a post-pandemic landscape, will need to source alternative forms of lending. 

Some sectors of the economy are recovering more rapidly than others. For those still struggling sectors, they require an additional government intervention, but for the remainder, no further Government intervention is necessary.

Grant continued “We were delighted to have been accredited for the RLS last year. The programme provided the necessary catalyst that many sectors required to thrive. However, this lifeline is now going and demand for working capital is set to soar to new highs as more businesses desperately require liquidity provisions to counteract record inflation levels, rising interest rates, supply chain issues, increases in wages and additional pandemic-induced headwinds. With the cost of borrowing set to increase, many SMEs are facing their own cost of living crisis.”

“A sector focused government-backed loan scheme which brings together both traditional and alternative lenders to guarantee the future of our SMEs in struggling sectors, is critical to ensure that opportunities for their growth are not missed. We very much hope this is something that becomes a reality. In the meantime, all SMEs would be well-advised to take stock of their current capital structures and, if appropriate, access fixed term, fixed rate loans to prevent additional exposure to an increasingly volatile lending market.”

Gregory Taylor, Head of Banking and Finance at MHA, said “The Recovery Loan Scheme failed in its role of unlocking commercial lending for SMEs. It was notably less generous than previous loan schemes like CBILS (Coronavirus Business Interruption Loan Scheme) and the Bounce Back loan. As a result, fewer SMEs applied and those that did were frequently rejected by the commercial lenders. Since the scheme came into force advisers to SMEs have seen their inboxes overflowing with messages detailing how companies applying for recovery loans are being rebuffed.”

“The system is not working. With rising inflation and interest rates and the real possibility of a recession the government should use the end of the Recovery Loan Scheme to reboot commercial lending for SMEs. It needs to introduce a new loan scheme.”

“The new loan scheme should see the government guarantee increased back to 100%. This was the case under previous Covid-19 support schemes but it was lowered to 70% under the Recovery Loan Scheme. Increasing the guarantee will encourage lending to a wider variety of companies, especially those in hospitality and retail. In addition, the new loan scheme should come with an interest free period of 6 to 12 months to allow businesses breathing space in the current economic environment.”

“Finally, eligibility must not be based on the effect Covid-19 has had on a business. This is very tough for a business to prove and is now less relevant given other economic pressures like fuel costs, inflation and supply chain issues. Therefore looking to see if a business was “viable” from the 2019 financial year would more suitable as a core test of eligibility.”

“Whatever happens we must avoid the scenario that unfolded with commercial lending in 2008.”