Nearly one in three UK small and medium-sized enterprises have been forced to stop or pause some part of their operations over the past two years because of limited access to finance, according to new research commissioned by Manx Financial Group.

The findings, drawn from the financial group’s fourth annual SME survey, suggest that 30% of SMEs have faced constraints serious enough to halt areas such as hiring, research and development, product launches, marketing and international expansion.

The figures point to a persistent funding gap that continues to weigh heavily on the sector.

The report comes amid ongoing global instability, with geopolitical tensions and trade tariffs continuing to dampen business confidence.

The scale of the problem has remained consistent into this year, with 31% of firms in 2024 still reporting the need to stop or scale back activities due to financial limitations.

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Attempts to secure external capital were not always successful. One in 10 SMEs seeking funding said they were unable to access it, with secured loans and invoice financing identified as the most commonly used channels. Yet even these routes remain fraught with challenges.

Cost was the biggest barrier cited, with 33% of respondents saying available finance was simply too expensive. Almost as many SMEs pointed to inflexible repayment terms and slow application processes, both mentioned by 28% of those surveyed.

A further 16% said lenders did not understand the nature of their business.

The proportion of businesses expecting no growth in the coming year is also rising. Some 38% of SMEs now predict stagnant performance over the next 12 months, up from 27% in 2023 and 25% in the previous year.

However, most firms remain optimistic that appropriate financial support could make a significant difference, estimating an average potential growth rate of up to 13% if funding were available.

Douglas Grant, group chief executive at Manx Financial Group, warned that this entrenched difficulty in accessing capital poses a broader risk to the UK economy.

“Our research highlights a persistent challenge for UK SMEs: accessing finance remains difficult, and this funding gap threatens not only their survival but also the broader UK economy,” he said.

“With SMEs generating around half of all private sector turnover, limited access to credit is a serious drag on national growth, especially during such volatile and uncertain times.”

Grant pointed to a confluence of pressures – high borrowing costs, inflation, and labour market constraints – that are increasingly hard to navigate without adequate financial buffers.

While some firms had the foresight to fix borrowing costs earlier, others are now exposed to a more expensive and less forgiving lending environment.

He called on the new Labour administration to act swiftly in addressing the needs of the SME finance market.

“As the SME lending landscape evolves, the Labour government must prioritise targeted measures to unlock credit, boost lender collaboration, and accelerate growth,” he said.

“Despite strong rhetoric, there’s still a gap between ambition and action, leaving both traditional and alternative lenders key to supporting SMEs through economic turbulence and rising fiscal pressures.”