Lack of available finance hampering SMEs – and things aren’t getting better anytime soon
Small and medium-sized businesses (SMEs) are struggling to access funding as rising rates force banks to put up the costs of lending.
According to YouGov data collected for AIM-listed Manx Financial Group, 40 per cent of SMEs had to stop or pause an area of their business due to a lack of funding over the last couple of years. This was higher than the 27 per cent recorded last year.
As rates rise, lenders have had to increase the cost of funds available to businesses. Companies looking for new loans or to refinance deals will face significantly higher costs than a few years ago.
39 per cent of SMEs surveyed said they were unable to access funding because it was too expensive.
Experts have also warned that changing regulations on SME lending could cut lending to small businesses by around a third, further denting the availability of funding.
Douglas Grant, chief executive of Manx Financial Group, commented: “Our research uncovers a persistent issue that we have long been witnessing: SMEs are still facing difficulties in obtaining finance”
“As the cost of borrowing increases, many businesses are facing their own cost of living crisis. While many SMEs were proactive by locking their debt into fixed rate structures, it is now too late for other businesses that have borne the brunt of spiralling costs without a financial safety net.”
The most common activities that SMEs have been forced to stop because of a lack of financing was hiring the right personnel and expanding into new markets.
Rising funding costs raises the risk that more businesses will go under, as they already face surging bills and wage costs.
Insolvencies have increased in recent months, reaching over 2,500 in May this year – 40 per cent higher than May last year.
SMEs also face a range of other problems when accessing financing. 36 per cent said the process took too long while 25 per cent said the banks did not understand their business.