New research has found that two in five small and medium sized enterprises have had to stop or pause an area of their business because of a lack of finance over the last couple of years, a significant increase from 27% of SMEs recorded in last year’s survey.

This is according to new research commissioned by Manx Financial Group, which includes subsidiaries such as Conister Bank, Conister Finance & Leasing and Blue Star Business Solutions.

Manx Financial Group’s research showed that the most popular external finance options for SMEs were unsecured and short-term business loans followed by secured and cash advanced loans. The survey also highlighted that nearly one in seven (15%) of SMEs that needed external finance and/or capital were unable to access it.

The biggest barriers faced by SMEs in sourcing external finance/and or capital were that it was too expensive (39%), the process took too long (36%) and that there was a lack of flexibility with repayment terms (34%). SMEs also cited other barriers such as the fact that the lender didn’t understand their business (25%) and that they received poor customer care (8%).

The most common activities that SMEs have been forced to pause or stop because of a lack of financing were marketing, expanding into new markets, hiring the right personnel opening news offices or sites and R&D.

Over the next 12 months, SMEs believe sales, new market expansion and recruitment will be the areas that will see the most growth although despite a fall from last year (34%), more than a quarter (27%) of SMEs are concerned that their business will not grow at all in the next 12 months. However, with appropriate external finance, most SMEs believe they could grow their business by up to 19%.

Douglas Grant, CEO of Manx Financial Group, said: “Unfortunately our research uncovers a persistent issue that we have long been witnessing: SMEs are still facing difficulties in obtaining finance. Alarmingly, this limited accessibility will result in detrimental consequences for both SMEs and the UK economy in terms of growth, especially during uncertain periods when it is most needed. The extent of economic growth being forfeited is substantial considering SMEs account for around half of all private sector turnover in the UK. We need more innovative measures to tackle this funding shortfall.

“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 government should intervene to mitigate the impacts on SMEs, which are the backbone of the UK economy.

“We have been advocating for a permanent government-backed loan scheme that is sector focused and involves both traditional and non-traditional lenders to secure the future of our SMEs. As concerns mount over the future of the economy, the significance of implementing a permanent scheme cannot be overstated, it could serve as a critical factor in sustaining economic recovery and in turn, determine the survival of numerous companies.”