• Swindon & Wiltshire Economy
• Wednesday March 5 2025
• Author Name: Peter Davison

South West SMEs’ lack of access to finance is holding back productivity and growth – report

Smaller businesses are struggling to secure funding, which is suppressing productivity. That’s according to a new report from the British Business Bank.

The British Business Bank’s Small Business Finance Markets 2024/25 report, published yesterday (Tuesday) suggests investment by smaller businesses continues to be low, a key reason for UK productivity lagging behind other G7 countries.

The proportion of smaller businesses using finance declined from 50 per cent in Q3 2023 to 43 per cent in Q2 2024, reflecting a challenging economic environment, says the report.

In the South West, use of finance was down five percentage points between the second half of 2023 and first half of 2024, reflecting the overall trend.

The bank found that the high cost of credit and risk aversion were key factors for reluctance to access finance and lack of investment by smaller businesses.

Credit cards and overdrafts continued to be the most common forms of finance used by smaller businesses – especially in the South West – indicating borrowing for working capital over investment.

The South West was the only region in the UK that did not report a reduction in the use of credit cards.

Where bank lending was being utilised, challenger and specialist banks accounted for 60 per cent of gross lending – the highest on record.

Of the £62.1 billion of gross lending to smaller businesses in 2024, £37.3 billion was provided by challenger and specialist banks. Their share of gross lending exceeded that of the big five UK banks for the fourth year in a row, up from 59 per cent in 2023 and the highest on record.

Steve Conibear, UK Network Director South West at the British Business Bank, said: “It is clear that conditions are not easy for the South West’s smaller businesses which has clearly impacted investment decisions.

“For example, we’ve seen external finance used to fund short-term debt for working capital, rather than investment for longer term growth.

“If we want to see the region thrive we must keep championing sustainable business investment as a key driver of economic growth, job creation and productivity so wages and living standards improve.

“The findings from this report highlight the importance of ensuring smaller businesses in the South West have access to the diversity of finance they need to grow and succeed.

“Through our programmes, including Start Up Loans and the £200 million South West Investment Fund, we will continue to provide them with the capital they need to start, scale and reach their full potential.”

SWIG Finance, one of the lenders charged with delivering Start Up loans, said community development finance institutions could offer an alternative to “high-cost, short-term debt.”

“Many small businesses don’t know where to turn for financial support, and can end up taking out very high-cost, short-term debt, which solves a short-term problem but causes a longer term one as the repayments eat into their working capital,” said managing director John Peters.

“People-based CDFI lenders like SWIG Finance can offer a better solution as they will spend time understanding the real needs of a business and provide the right kind of help.”

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