Rising Interest Rates Is Biggest Challenge Facing SMEs

According to UK brokers, higher interest rates is the number one biggest challenge facing small and medium sized businesses (‘SMEs’) in the next 12 months closely followed by high inflation and securing finance as the cost of living bites. This is according to new research commissioned by Manx Financial Group PLC (AIM:MFX), the financial services group which includes, amongst other operating subsidiaries, Conister Bank Limited (“Conister”), Conister Finance & Leasing Limited and Blue Star Business Solutions Limited.

Key Findings:

• Additional research showed that two in five SME owners have had to stop or pause an area of business because of a lack of finance over last couple of years

• 40% said AI would be used to further facilitate commercial finance application decisions

• 96% of brokers believe that SME overall sentiment is positive and with appropriate external finance, most believe they could grow their business by up to 19%

Manx’s research showed that higher interest rates rose significantly in terms of the biggest challenge facing SMEs from fourth in last year’s survey to first. Higher inflation fell from first to second while supply and logistical issues and recruitment issues dropped off this year’s top three concerns.

SMEs felt that the ongoing cost of living crisis will mean that within their business, securing finance will be most affected, followed by new markets expansion, mergers & acquisitions and new product launches. Opening new offices or sites and hiring the right personnel were also highlighted by one in ten (11%).

Manx’s research also asked brokers about advancements in AI and how it will affect SMEs over the next twelve months. 40% said it would be used to further facilitate commercial finance application decisions while a fifth (20%) of SME brokers thought it would be used to identify new business opportunities. 19% thought SMEs would use it to determine future business risk and one in ten (9%) believe it will replace back office and non client facing roles.

The findings of the study follow earlier research3 with SME owners by Manx which showed that two in five (40%) have had to stop or pause an area of their business because of a lack of finance over the last couple of years.

Manx’s most recent research also showed that despite concerns over rising interest rates, higher inflation and the cost of living crisis, 96% (83% in 2022) of brokers believe that SME overall sentiment is positive. Indeed, with appropriate external finance, earlier research suggested that most SMEs believe they could grow their business by up to 19%.

Douglas Grant, CEO of Manx Financial Group PLC, commented: "Our research emphasises the challenges confronted by SMEs in the midst of an ongoing cost of living crisis."

"Overwhelmingly, almost every SME is being adversely affected. Accessing finance has been a persistent struggle for SMEs, and this lack of available funding is alarming as it will impede both their growth and the overall UK economy, particularly at a time when it is most needed."

"The loss of potential growth is becoming increasingly prevalent, necessitating innovative solutions to bridge this funding gap."

"We have been advocating for the establishment of a sector-focused, government-backed loan scheme that involves both traditional and non-traditional lenders. Such a scheme would provide much-needed security for the future of our SMEs. Given the mounting concerns about the economy's future, the implementation of a permanent scheme holds immense significance. It could serve as a crucial factor in sustaining economic recovery and ultimately determine the survival of many businesses.”