SME Intermediary Research: UK Findings

60%

SMEs’ lack of awareness of finance options available remains the biggest barrier to demand

81%

Gaps in finance supply for SMEs, regardless of their development stage

55%

There is not adequate finance support for those looking to start their own business

75%

SMEs are not well-informed about early-stage equity

75%

SMEs are not well-informated about alternative finance

67%

of SMEs are not well-equipped to reduce their debt burden in the next 12-18 months

Findings presented are based on an Intermediary Survey conducted by the UK Network Team Oct-Dec 2023 with 725 responses from intermediaries who engage with SMEs in the UK. The UK Network Team has a local expert based in every English region and Devolved Nation and the team's role is to strengthen stakeholder relationships across the UK to help SMEs access finance.

Summary of key findings across the UK

  • 81% of intermediaries believed that there are gaps in the supply of finance for small businesses, regardless of their stage of development. The main gaps were perceived to be in early-stage equity, growth stage equity and debt finance.
  • Intermediaries believed that the top sectors impacted by gaps in the supply of finance were Business Services, Construction and Distribution.
  • The changes that had the biggest impact on the UK financial ecosystem over recent years were viewed by intermediaries to be economic challenges, the digital transformation and government initiatives (various initiatives such as the Enterprise Investment Scheme and Seed Enterprise Investment Scheme to support small businesses).
  • Please note the intermediary survey sample size for each region is relatively low, and therefore findings should be treated with caution. Data for each region is based on the survey information provided by intermediaries on where the SMEs they engage with operate.

Introduction to the research

About the research

This report presents findings from an intermediary survey undertaken between October and December 2023. Where figures in charts do not add to 100%, this is due to rounding of percentages, exclusion of responses (eg ‘Don’t know’) or because the question allows more than one response.

About the sample

Intermediaries taking part in the research included accountants, lawyers, business support specialists and brokers. Data for each UK nation or region is based on the survey information provided by intermediaries on where the SMEs they engage with operate. Sample sizes vary across UK nations / regions, and findings should be treated as indicative.

SME demand for finance

Lack of awareness of finance options remains the biggest barrier for demand for finance

Coloured vertical bar chart with 7 different coloured bar statin percentages in descending order, Dark Blue 60% Lack of awareness of finance options available, Mid Blue 45% Access to supply of finance, Pale Blue 43% Cost of finance, Mint Green 39% Aversion to taking on finance, Yellow 20% Lack of referrals due to under-developed networks, Charcoal grey 13% Lack of trust in finance providers, Orange 12% Lack of ambition to grow
  • Lack of awareness of finance options available remains as the top barrier to finance (*2022 SME Intermediary Research: 70%)
  • ‘Lack of awareness’ is even higher in some nations and regions of the UK (North West 69%, Scotland 70%, West Mids 66%, Yorkshire & Humber 70%)
  • For some nations and regions of the UK ‘Aversion to taking on finance’ was one of the top three barriers

Intermediaries thought SMEs were not well-informed about equity or alternative finance

How well-informed are SMEs about finance options?

Stacked Vertical Bar Chart with 5 stacked bars, Dark blue very/fairly well-informed, Mid blue Not very/not all well-informed, Column One Debt Finance dark blue 64% mid blue 34%, Column Two Early stage equity (business angels) dark blue 22% mid blue 75%, Column Three Growth stage equity (Venture Capital) dark blue 22%, Column Four Later stage equity (Venture Capital and Private Equity) Dark Blue 21% Mid Blue 73%, Column Five Alternative finance (eg marketplace / peer-to-peer lending) Dark Blue 19% Mid Blue 7

How informed SMEs were about early-stage equity varies across different UK nations and regions

SMEs in nations or regions that intermediaries believe are well-informed about early stage equity (%)

Horizontal Bar Chart with 13 mid blue coloured bars showing scale from 0 - 40%, Yorkshire & Humber 6%, South West 14%, North East 20%, East Midlands 14%, West Midlands 13%, South East 28%, Northern Ireland 15%, London 34%,  Wales 22%, Scotland 29%, North West 24%, East of England 26%, UK 22%

Two thirds of UK intermediaries thought that SMEs are not well equipped to reduce their debt burden

How equipped are small businesses to reduce their debt burden over the next 12-18 months %?

How equipped are small businesses to reduce their debt burden over the next 12-18 months % - Three coloured pie chart  Mid Blue Not well equipped 67%, Yellow Well equipped 25%, Pink Don't Know 8%

Debt finance remains considered as most likely to be needed by SMEs if there is an upcoming economic recession

To what extent do you agree or disagree that small businesses will require the following types of additional finance if there is an economic recession over the next 12-18 months?

Stacked 4 coloured horizontal bar chart with 6 stacked bars. Mid blue agree, Orange neither agree nor disagree, Grey disagree, Yellow Don't know. Debt finance (eg bank loans, bank overdrafts) mid blue 87%, orange 7%, grey 5%, yellow 1%. Alternative finance (eg marketplace/peer to peer lending) mid blue 63%, orange 23%, grey 10%, yellow 4%. Early stage equity (business angels) mid blue 68%, orange 16%, grey 11%, yellow 5%. Growth stage equity (venture capital) mid blue 69%, orange 17%, grey 10%, yellow 4%. L

Most UK intermediaries agreed there were gaps in finance supply for SMEs regardless of development stage

Are there gaps in the supply of finance for small businesses in this region or nation?

Are there gaps in the supply of finance for small businesses in this region or nation? 3 coloured pie chart, Mid Blue Yes 81%, Orange No 11%, Grey Other 8%

Two thirds of respondents believed that there is a gap in the supply of early-stage equity

What types of finance are you specifically thinking about when you identified gaps in the supply of finance for small businesses in your region or nation? Percentage of respondents selecting the option

Coloured vertical bar chart with 5 different coloured bar stating percentages in descending order. Mid Blue 67% Early stage equity (business angels), Pale Blue 53% Debt finance (eg bank loans, bank overdrafts), Yellow 51% Growth stage equity (venture capital), Grey 29% Alternative finance (eg marketplace / peer-to-peer lending), Mint Green 22% Late stage equity (venture capital and private equity).
  • Other debt gaps identified included: Venture debt, grants (incl. regional), replacement capital, affordable finance and a desire that banks would refer more asset finance to brokers/ lenders if they cannot assist SMEs

Sectors most likely to be impacted by gaps in finance supply

Which sectors do you think are most likely to be impacted when you identified gaps in the supply of finance for small businesses in your region or nation? Percentage of respondents selecting the option

Coloured vertical bar chart with 5 different coloured bar stating percentages in descending order. Mid Blue 39% Business Services, Pale Blue 37% Construction, Yellow 30% Distribution, Grey 29% Production, Mint Green 22% Other Services
  • Other sectors mentioned specifically by respondents included: technology and innovation, retail, hospitality, leisure and tourism, creative and B2C businesses, life sciences, bioscience and deep-tech.

Sectors most impacted by gaps in the supply of finance varied across the UK

Vertical multi coloured bar chart showing sectors across the UK regions and nations. Mid Blue - Business Services, Orange - Construction, Grey - Distribution, Yellow -Other Services, Pale Blue - Production. Regions and Nations from left to right. UK, East of England, North West, Scotland, Wales, London, Northern Ireland, South East, West Midlands, East Midlands, North East, South West, Yorkshire & Humber.

Over half of UK intermediaries believed there is not adequate finance for start-up businesses

Is there adequate finance support for those looking to start their own business?

Three coloured pie chart. Mid Blue - No 55%, Orange - Yes 38%, Grey - Don't Know 8%.

Finance ecosystem

Impact on the UK financial ecosystem over recent years

Thinking about how the UK financial ecosystem has evolved over recent years, what do you think have most impacted the financial ecosystem in your nation or region? Percentage of respondents selection option

Horizontal Bar Chart with 11 mid blue coloured bars showing scale from 6 - 57%. Sustainability and ESG - 9%, Supportive ecosystem - 22%, Regulatory changes - 6%, Open banking - 8%, Increased competition - 13%, Government initiatives - 41%, Fintech lending - 17%, Economic challenges - 57%, Digital transformation - 45%, Brexit implications - 33%, Alternative funding sources - 31%.
  • 41% of respondents believe that Government initiatives to support small businesses, such as the Enterprise Investment Scheme (EIS) and Seed Enterprise Investments Scheme (SEIS), which offer tax incentives for investors in small businesses, as well as loans and grant schemes, were one of the top three changes that have impacted the UK financial ecosystem in recent years

Definitions of impact choices available for the question about how the financial ecosystem has evolved over recent years.

Definition of terms

Alternative funding sources

Small businesses have more options for raising equity capital. In addition to traditional sources like venture capital and angel investors, crowdfunding and peer-to-peer lending platforms have gained prominence, allowing small businesses to access a broader investor base.

Brexit implications

The UK's exit from the EU brought changes to trade regulations and affected some small businesses with interational operations, leading to adjustments in their financial strategy

Digital transformation

Small businesses increasingly adopted digital tools and platforms for their financial operations, from online banking and accounting software to e-commerce solutions. This has also made it easier for small businesses to connect with potential equity investors, pitch their ideas and manage equity transactions.

Economic challenges

The financial ecosystem for small businesses faced fluctuations in the economy with challenges related to uncertainty, access to credit, and changing consumer behaviour

Fintech lending

The rise of fintech companies has offered alternative lending options for small businesses, providing easier access to financing outside of traditional banks.

Government initiatives

The UK government introduced various initiatives to support small businesses, including the Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS) which offer tax incentives for investors in small businesses, as well as loan schemes and grants, to make small businesses more attractive for equity investment and to help businesses during economic challenges.

Increased competition

Small businesses had more choices in terms of financial services, as traditional banks faced competition from digital banks, fintech companies, and non-bank lenders.

Open Banking

Open Banking initiatives began to benefit small businesses by enabling them to share their financial data securely with financial service providers to access tailored financial products.

Regulatory changes

Regulations aimed at protecting small businesses and enhancing transparency in financial dealings were introduced, including the Payment Service Directive (PSD2) and MiFID II

Supportive ecosystem

Incubators, accelerators and business support organisations have increased in prominence, offering small business guidance, mentoring and networking opportunities for those seeking equity investment.

Sustainability and ESG Focus

Small businesses are increasingly aware of Environmental, Social and Governance (ESG) considerations and responsible business practices and investors are interested in small businesses with a strong ESG focus.

Appendix

SME demand for finance Appendix notes

How informed SMEs were about debt finance varies across different UK nations and regions

SMEs in nations or regions that intermediaries believe are well-informed or very well-informed about debt finance (%)
Horizontal Bar Chart with 13 mid blue coloured bars showing scale from 0 - 90%. Yorkshire & Humber - 76%, South West - 65%, North East - 79%, East Midlands - 82%, West Midlands - 63%, South East - 55%, Northern Ireland - 74%, London - 64%, Wales - 63%, Scotland - 52%, North West - 62%, East of England - 63%, UK - 64%.

How informed SMEs were about alternative finance varies across different UK nations and regions

SMEs in nations or regions that intermediaries believe are well-informed or very well-informed about alternative finance (%)
Horizontal Bar Chart with 13 mid blue coloured bars showing scale from 0 - 30%. Yorkshire & Humber - 11%, South West - 26%, North East - 15%, East Midlands - 24%, West Midlands - 22%, South East - 12%, Northern Ireland - 21%, London - 26%, Wales - 14%, Scotland - 13%, North West - 13%, East of England - 15%, UK - 19%.

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