What UK SMEs Really Think: Reward Survey Reveals the Hidden Cost of Policy and Economic Uncertainty – by Nick Smith
From increases in employer national insurance contributions through to the ongoing global trade tariff dispute, the last 12 months has been a turbulent period for many businesses, especially SMEs.
As an alternative lender which works closely with our clients to understanding their needs, we wanted to gauge the mood amongst SMEs and hear their opinions on the business issues that matter.
We undertook an extensive survey covering all the hot topics and here’s a summary of what we found.
Trade Tariff Turmoil
Over half of SMEs (53%) anticipate trade tariff increases will have a negative impact on their business.
Respondents cited potential supply chain disruption and increased costs of American raw materials and components as key concerns. Additionally, 18% believe such tariffs could cause currency market fluctuations, while around one in ten (12%) warn of risks to profitability and growth of their business, and 6% feel it will cause cash flow challenges.
We feel these findings highlight the continued unease among SMEs regarding the broader implications of international trade policy shifts. We certainly hope negotiations between the UK and US continue positively and this cloud can be lifted from any business impacted by the tariff uncertainty.
Void left by traditional funding shows no signs of shrinking
The void left by traditional funding shows no signs of shrinking, with 79% of the SMEs we surveyed being denied finance from banks and other traditional lenders.
It appears from our research that traditional funders are still not lending to SMEs at the levels needed, prompting many to seek alternative finance solutions. It typically boils down to perceived risk and regulatory pressures, with a growing number of businesses unfortunately being penalised by a limited credit history, insufficient assets or simply operating in a volatile sector, such as retail, tourism or hospitality.
We feel this low appetite towards risk is holding UK business back, is too rigid and is the reason why we’ve always adopted a ‘can-do’ approach, driven by a desire to work with our clients in order to fund SMEs’ growth ambitions.
What we now expect from the Chancellor
Speaking directly to our clients provided a great insight into the main pain points SMEs are facing and what they would like the Chancellor to now implement to drive growth.
Many were keen for Rachel Reeves to reverse the inheritance tax amendments and national insurance increases, whilst lowering business running costs and reducing corporation tax. One business said that they would like her introduce a national SME Growth Fund with quicker, more flexible access to capital, ringfenced for businesses that commit to local employment, sustainability and innovation.
Many felt the current business climate was too uncertain and more should be done to attract inward investment for SMEs, by providing incentives for investors, such as tax breaks, investment schemes and venture capital support.
Uncovering the biggest financial pressures SMEs face
The 1.2% increase to employer national insurance contributions is the biggest financial pressure affecting SMEs currently.
The increase in national insurance contributions earlier this year has clearly caused a financial headache, impacting 74% of companies, closely followed by the continued burden of rising energy costs (68%).
Escalating business rates, increased inflation and overall economic uncertainty is also proving challenging for over half of SMEs, whilst the National Living Wage increase to £12.21 is causing a significant dent to the finances of 42% of businesses we surveyed.
In the current uncertain economic climate, strong cash flow management still remains pivotal for SMEs navigating many of these external financial pressures. Whilst the government has recently increased the VAT registration threshold and extended the full expensing scheme in a bid to ease cash flow challenges for many firms, more certainly needs to be done.
Government policies blocking growth
The majority of SMEs we surveyed believe government policies are holding them back from growth.
Our findings show a sobering reality for SMEs, with 69% of the businesses stating that current government pressures are directly stifling their growth potential. That’s not a short-term hiccup, it’s a systemic concern and a stark warning for policymakers.
Not only are firms feeling unable to grow, more than half (53%) say it’s becoming even more difficult to manage cash flow. Over 30% report they’ll freeze salaries and struggle to access working capital in the next 12 months. And, while a fifth expect pressure to adopt new technologies like AI to stay competitive, 26% have already paused recruitment and others are concerned about shrinking government support.
In summary
Our survey has clearly highlighted that it’s a tough landscape out there for many SME-size firms across virtually every sector.
Policy decisions are having unintended consequences on SME sustainability and if we want these firms to thrive, not just survive, more support must be offered, and fast.
SMEs are the lifeblood of the UK economy and there’s clearly a lot for the Chancellor to get her teeth into in the coming weeks and months.
Our research most importantly confirms how the economy needs bold, innovative and entrepreneurial thinking right about now. As lenders we also play a critical role in providing funding where possible to create a climate built for growth rather than one that is stifled by fear.
It’s a collective effort and we hope the burden on SMEs can be lifted so there is light at the end of the tunnel.
