As CPI inflation falls back to the Bank of England’s target of 2% for the first time since July

2021, more than 45% of SMEs say that despite the drop in inflation Government needs to do

more to support business growth as firms continue to face difficulty accessing finance and

banking services, according to data from the PRISM SME Barometer.

“The accessibility of financing holds immense importance for SMEs and national economic growth, but for businesses that have not safeguarded themselves with fixed-rate debt structures, the economic situation could be critical,” says Douglas Grant, Group CEO, Manx Financial Group.  “Given the short-term loan schemes implemented in recent years, it is imperative for the Government to look to extend efforts to enhance SME resilience.”

“Many smaller businesses took on more debt during the pandemic and for those with variable rate loans, the extra burden of servicing these borrowings will be the last straw.  Too many have only survived this long because interest rates were ultra-low for a decade or more,” says Nick Hood, Senior Advisor, Opus Business Advisory Group.  “SMEs have been battling economic issues for three and a half years now, and corporate insolvency numbers are rising as directors run out of options.  People may try to blame the rise in corporate insolvencies on the aftermath of the pandemic, but the reality is what SME owners and managers are dealing with are more recent issues.  They’re grappling with negative financial impact all over their business models, whether it’s lower consumer spending, lower margins from input cost inflation, higher staff costs, the tight labour market restricting their workforce or sharply higher interest cost.”

Recently, the Federation of Small Businesses (FSB) raised a red flag by filing a super-complaint to the Financial Conduct Authority (FCA) about banks’ harsh lending practices citing particular concern about the excessive demand for personal guarantees on business loans.  Martin McTague, National Chair, FSB, describes personal guarantees as a ‘straitjacket on business growth’, explaining “This can be particularly paralysing when they are applied to small loans – leaving many business owners more likely to abandon their business growth plans or push them into being over-cautious in their decision-making and deterred from making bold choices.”  The FSB calls for a “strong dose of proportionality” rather than a blanket imposition of personal guarantees, especially for small loan amounts that could be transformational for small businesses.

On a positive note, the PRISM SME Barometer welcomes HM Treasury’s confirmation that the Enterprise Investment Scheme (EIS) and Venture Capital Trusts (VCT) will be extended beyond the current 2025 deadline.  The EIS accounts for nearly £2.3 billion of investment into nearly 5,000 startups every year.  Christiana Stewart-Lockhart, Director General of the Enterprise Investment Scheme Association (EISA), highlights the importance of this extension: “Without it, the sunset clause would have seen the current scheme ending in April 2025, which would be disastrous for several of the country’s key high-growth businesses across many sectors including medicine and technology.”

The PRISM SME Barometer underscores the need for a clear, long-term economic plan, shaped collectively by businesses, universities, and policymakers.  The lack of consistent focus on specific economic strengths and the failure of successive strategies to gain momentum or longevity are hindering the UK’s ability to attract, start, and scale innovative businesses.

As the UK navigates through uncertain economic waters, the PRISM SME Barometer serves as a crucial voice for SMEs, calling on the Government to reassess its support measures.  With over 45% of firms feeling that the current balance of SME growth is not right, there is a clear mandate for the next Government to create a roadmap that boosts confidence and investment.