New research from leading business and financial adviser Grant Thornton UK LLP finds that, while many businesses expect they will need to secure additional funding to support their growth this year, the majority are currently finding it difficult to access the funding required.
The firm’s research* which surveyed 800 businesses in the UK, finds that 70% expect that they’ll need to apply for additional funding this year. The most common amount expected to be needed was between £10million – £25million. The top reasons noted for this extra funding are to ‘invest in new premises or equipment’ and to ‘invest in R&D or new service offerings’. Over one quarter of those who required funding also said that it would be needed to manage challenges in the market, including to ‘support liquidity requirements linked to challenging trading conditions’ (29%) and to manage the impact of ‘increasing employment costs’ (26%).
However, many businesses do not anticipate it will be easy to secure the extra funding their business requires. In fact, over two thirds (68%) said that their business is currently finding it hard to access new sources of funding. The majority (69%) are utilising alternative lending sources, with the number of businesses who would consider funding from alternative funding sources (82%) such as asset-backed loans or specialist credit funds, or a debt fund, being the same as those who would consider a traditional bank loan (82%).
Larger businesses are also much more confident that their existing lender would support their additional funding needs (92%) compared to the medium-sized businesses surveyed (80%). They are also found to have more flexibility with the funding sources available to them, with 83% of larger businesses prepared to move to a new lender that may be more expensive but offered better terms, compared to 68% of medium-sized businesses. This may reflect the fact that medium-sized businesses’ confidence in their funding position has been on a steady decline throughout 2024 and remained stagnant in December, at -9 percentage points (pp) lower than the start of the year.
A lack of funding is also found to be constraining all businesses’ abilities to boost their productivity levels. Of the 68% who noted this as an issue, the biggest barriers they are facing when accessing new funding sources are:
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The complexity or length of the funding application process
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Regulatory barriers or compliance requirements
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Limited availability of affordable financing options
Almost three quarters (73%) of the businesses surveyed believe that the Government needs to do more to help improve access to private sources of funding for businesses. These businesses believe that the Government should prioritise the below actions to address this issue:
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Improve partnerships with private financial institutions to expand access
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Implement policies that incentivise private investment in local businesses
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Enhance tax incentives for private investors in high-growth sectors
Alistair Wardell, Partner at Grant Thornton UK LLP and Head of Restructuring in the South of England and Wales, said:
“Access to funding is crucial for driving business growth in Wales and while businesses of all sizes are anticipating that they’ll need to access additional funding this year, many are not expecting it to be a straightforward process. Higher interest rates are an ongoing challenge in the wider market, along with rising input and labour costs – exacerbated by the increases to employer National Insurance Contributions and National Minimum Wage announced in the Budget – and, for some sectors, exposure to waning consumer confidence. These issues are likely increasing businesses’ need for further funding while also impacting their ability to access it.”
Adam Hughes, Director of Debt Advisory at Grant Thornton UK LLP, said:
“The debt markets have recovered significantly over the last year and our expectation is that this will continue through 2025. Whilst the base rate is still higher than it has been, it has stabilised and it’s anticipated that it will reduce further over the medium term. Lenders do however have a high bar and are sensitive to the challenges in the macro-economic environment, particularly in sectors such as retail and leisure where businesses’ financial performance is driven by discretionary spending. The impacts of the October Budget on National Insurance and National Minimum Wage have also been factored into credit decisions as this has directly impacted the financial outlook for many businesses. This means that it is vital for businesses to know which funders to approach and how best to present their business in a balanced way.
“Liquidity across the debt markets has never been greater and the various options available means that there are numerous potential avenues and types of lenders for businesses to approach – with the British Business Bank confirming that 50% of new money lent in the UK now comes from sources other than the high street. Whilst this variety is positive, it can be challenging to navigate the market as accessing new or additional funding can be a complex process and so preparation is key. To be in the best position, all businesses need to be able to provide a realistic business plan, including evidence of robust financial performance whilst providing a clear ask to potential lenders.”
With many businesses struggling to access the finance they need, Grant Thornton outlines five actions that businesses can be taking now to be prepared as possible for re-financing, including:
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Build relationships with lenders early: Engaging with lenders beyond minimum obligations is crucial for securing favourable terms in a competitive market as they will have a deeper understanding of the business and its leadership and be in a better position to address potential concerns raised by their credit teams.
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Focus on ESG credentials: Sustainability credentials are likely to have an increasing bearing on credit availability and pricing and businesses need to be able to demonstrate robust evidence of their performance in this space.
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Consider alternative sources of lending: There are a lot of options available for different borrowers. In addition to the traditional banks, there are challenger banks, private credit funds, and asset-based lenders with Government-backed lending schemes providing liquidity for SME’s.
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Prepare reliable forecasts: Finance teams need a robust operational model that accurately reflects historical performance and forecasts future outcomes, as well as accurate and clean financial data. A strong financial foundation will build lender confidence, allowing a business to secure more favourable terms. It’s key that forecasts are not overly optimistic and that businesses are able to achieve them rather than miss budget.
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Consider terms as well as price: While cost will always be a significant factor, it shouldn’t be the only one. Striking a balance between cost and flexibility is vital for long-term sustainability and other factors to evaluate include the level of flexibility in the repayments, any ‘value-add’ services the lender may offer and ensuring the covenants are realistic.
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