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13th Sep, 2023

Tamaryn Wilde
Tamaryn Wilde
Job Title
Executive Consultant

The UK economy has been through a turbulent time over the past few years. All businesses rely on some level of financial funding but mainstream – and even some smaller – banks are becoming much more selective about who they lend to. And with business confidence waning, this situation could escalate further.

The government’s ‘SME Finance’ inquiry recently (8 September) closed its submissions for evidence, looking specifically at the accessibility of finance and lending to SMEs, the key challenges they are facing, and the role that the government can play in enhancing lending.

The ICAEW responded to the call for evidence, and in its report highlights the findings of the ICAEW's Business Confidence Monitor (BCM) for the second quarter of 2023, where the proportion of SMEs reporting access to finance and bank charges were both challenges which had risen sharply over the past year.

What are the potential consequences of restricting SME growth?

Small businesses are the lifeblood of the UK economy representing 90% of businesses, and 50% of the employment market worldwide.

Without proper finance, many SMEs will be unable to stay afloat (especially when grappling with higher costs). This could result in the economy taking a further dive if SMEs are not adequately supported and funded, as well as job losses, and higher unemployment rates.

Small business owners and entrepreneurs are what help drive innovation, pioneering new technologies, products, and services, and without this, the UK could be left behind in the global market.

What are the solutions?

Here are some of the ICAEW’s recommendations and my thoughts on these and their potential impact:

  • The government recently enhanced procedures for banks regarding personal bank account closures and requested that further consideration should be given to whether the same rights could be applied to business bank accounts.

This would hold banks accountable for closures, provide richer data on the availability of funding, and overall give more power to SME owners.

  • Explore a new version of the Growth Voucher programme that closed to new applications in 2015. The scheme was successful in helping small businesses access strategic advice around financing.

This seems a logical solution when you consider how many SMEs report that lack of awareness around funding and finance is a key challenge for them. As well as finance and cash flow advice, the programme also gave applicants advice on recruitment, marketing, digital technology, and leadership skills – all of which are essential to growing a business.

  • Enable larger start-up loans via the British Business Bank (the threshold of £25k hasn’t changed since the start of the scheme in 2012).

The start-up loan programme aims to encourage entrepreneurship, increase the rate of business creation, and improve survival prospects. And in today’s climate, where costs are considerably higher, the maximum loan amount of £25,000 will not stretch as far. Increasing the threshold will help many more businesses continue to see growth and greater investment in their companies.

You could assume that the reason for these challenges currently being more acute is due to the difficult climate we are in, and that it will be easier for SMEs to obtain finance when the economy stabilises. But if the government fails to act fast on implementing strategies and programmes that support our small businesses, it could have disastrous consequences - further damaging the economy and the UK jobs market.

If you are looking to hire an accountancy and finance professional to join your business, or looking for a new career opportunity yourself, get in touch today.