Liz Barclay
Special Adviser, Small Business and Entrepreneurship
Institute of Directors
UK SMEs are ready to grow, but funding barriers and low confidence are holding them back. Learn why access to finance remains a major challenge for small businesses.
Government wants businesses to grow. The IoD survey1 of members’ business priorities in April for the rest of 2025, showed almost 8 in 10 directors had driving growth as the top priority. More than a third also prioritised investing in technology/software (including AI) and products/services. Be the Business found a 1% annual improvement in UK small and medium business productivity would boost the economy by £94bn in five years2.
Small businesses are tough and agile but don’t have deep pockets to weather change as bigger businesses can.
SMEs face funding gap despite Government support
However, the cost of doing business, wage increases and hikes in National Insurance contributions alongside stubbornly high inflation and interest rates makes investment for growth challenging, particularly for smaller enterprises. Accessing funding is often cited as the main barrier to investment in people, tech or skills. There’s money, but small businesses often apply for the wrong funding, aren’t funding-ready and get rejected. We need to support smaller businesses to win the right funding at the right time for the stage of their business.
The UK Government is actively trying to persuade small businesses to invest with an additional £4.5 billion through the British Business Bank, the extension of the Growth Guarantee Scheme to 2030 and £1 billion added to support up to 69,000 new entrepreneurs, with the average start-up loan size increased to £15,0003. There’s the new Business Growth Service, Late Payment Reform, High Street investment, support to help small businesses export, diversify revenue streams and work with public bodies through changes to the Procurement Act. The ‘Backing Your Business’ plan has a focus on creating a culture of entrepreneurship, unlocking capital, reducing friction, building confidence and encouraging small businesses to scale.
Funding challenges threaten small business growth
Confidence is key to investment, but almost every index puts it at an all-time low. Confidence comes with certainty, and there’s been little certainty since the financial meltdown in 2008. Events at home and overseas, the pandemic and constant policy changes have exacerbated uncertainty.
Small businesses are tough and agile but don’t have deep pockets to weather change as bigger businesses can. We need clarity, consistency and certainty to rebuild confidence. Then, we can forge ahead with investment in growth. Otherwise, the future’s bleak.
[1] IOD. 2025. Businesses seek to drive growth amid economic challenges
[2] Be the Business. 2023. 1% annual improvement in UK SME productivity would grow economy by £94bn in 5 years 3. Department for Business and Trade. 2025. Backing your business: our plan for small and medium-sized businesses. Gov.UK
[3] Department for Business and Trade. 2025. Backing your business: our plan for small and medium-sized businesses. Gov.UK
