Robin Abrams
FSB Finance and Banking Policy Champion

Small businesses disproportionately rely on external finance for their business operations, cashflow, and investment opportunities. By virtue of their size, these are not businesses that often have capital available to expand and invest without outside funding. Given the recent economic turmoil of the pandemic, Russia’s invasion of Ukraine, the stagnating of the economy, and inflationary pressures, there is a risk that the UK financial market may begin squeezing lending to small businesses, reminiscent of the period following the 2008 financial crash.

As we approach 2023, small businesses are inundated with debt that is holding back economic growth and will take years to fully repay. This is not evenly distributed, with the small businesses in sectors more adversely affected by the lockdown measures having accrued greater proportions of relative debt. This unprecedented level of debt is something that both the Government and financial institutions will need to keep in the forefront of their decision making as it will dictate the rate at which demand for external finance and debt changes over the short term for small businesses.

The vast majority of the UK’s business population is small, and no one-size-fits-all approach to finance will be appropriate. The greater the diversity of lenders and financial products in the market, the more efficiently the market will operate. However, awareness of financial products and lenders is a limiting factor – the average small business owner is not a finance expert, and the myriad complex options can be overwhelming.

Access to finance is crucial to increase small business investment. There is now a very low concentration of small businesses planning green investments over the short term despite the need to shift businesses towards the net zero target. This may be driven by the fact that many green investments have a very long-term financial return on investment and when evaluating options in light of the current economic turmoil, businesses will be prioritising shorter-term growth initiatives or cash savings. To improve progress towards net zero, the Government needs to incentivise investments in this area.

An emerging concern around small business access to finance is the success rate of applications. Since the peak in success rates during the pandemic in mid-2020, the rate of success has halved, with our own Small Business Index data showing it falling to an all-time low of just two-fifths of applications. However, the low success rate alone does not adequately demonstrate the variety of obstacles small businesses face when applying for different forms of finance.

Small businesses have difficulty acquiring finance for a variety of reasons, and the form the finance takes also plays a big part – traditional bank loans, despite being commonly associated with small business finance, are considered the second-most difficult to acquire, ahead of only equity. The primary reason for difficulties accessing different forms of finance is due to application processes being too long and the inability to speak to anyone about the process itself.

Small businesses need Government support to improve this access. The Government should expand and encourage uptake of programmes like the Bank Referral Scheme, expand access to British Business Bank-backed loans, and deliver on its 2019 manifesto promises to improve the Business Banking Resolution Service. It is vital that the credit tap doesn’t turn off in the same way it did following the financial crash.

Key findings




  • The British Business Bank should encourage the use of the Bank Referral Scheme, and expand the number of banks and approved alternative lenders in the scheme. (p.18)
  • The Small and Medium Sized Enterprise Finance Charter should be expanded, and uptake should be encouraged for all lenders with significant SME portfolios. (p.19)
  • The Financial Conduct Authority should reverse the minimum fees and levies increase outlined in the CP21/33 consultation and reinstate a progressive fee system. (p.19)
  • A set of Key Performance Indicators should be created for Banking Hubs that will replace closed bank branches in communities, with data published monthly to assess their effectiveness as alternatives to financial institutions for small businesses. (p.20)  
  • The Start Up Loans scheme should be expanded from 11,000 to 15,000 loans per year. (p.44)  
  • The Prudential Regulation Authority should not seek to implement policies as part of its implementation of Basel III standards in the UK, which seek to impose additional capital requirements on banks which subsequently affect funding to SMEs. (p.20)  
  • The Government needs to deliver on its 2019 manifesto pledge to improve self-employed people’s access to mortgages. (p.21)  
  • The Business Banking Resolution Service needs to adequately address outstanding cases and clear its backlog, passing on compensation and delivering value for money. The deadline for historic cases also needs to be extended beyond February 2023. (p.21)  

Business investment incentives

  • The Government should reverse direction from its announcement on Research and Development tax credits at the Autumn Statement that will seriously reduce SME R&D in the UK economy. (p.32)
  • The Government should simplify the existing SME R&D tax relief scheme, so it is easier for small businesses to apply directly or through their usual accountants rather than using specialised intermediaries, and cap intermediaries’ payment share to 25% of the relief received. (p.32) 9 Contents
  • All future capital allowances should include second-hand capital purchases to allow small businesses to offset the cost of upgrading their machinery without the requirement of the asset being new. (p.32)
  • The Government should introduce a VAT-based capital investment incentive, to drive up the amount of small business investment in a faster, simpler way rather than the outgoing big businessfriendly super deduction. (p.33)
  • The UK Government should make clear it is removing the sunset clause of 2026 within the Seed Enterprise Investment Scheme to provide greater certainty and longevity to investment plans, and uprate the investment limit with inflation each year. (p.54)

Business ecosystem

  • The Treasury should review the processes by which small businesses acquire finance from the main high street lenders and identify areas where the process can be streamlined. (p.18)
  • Companies House should add an ethnicity field to the annual registration process and include additional questions as part of the Management and Expectations Survey. (p.45)
  • The Department for Business, Energy and Industrial Strategy (BEIS) should introduce a Help to Grow Bitesize for all microbusinesses and sole traders which includes a selection of optional modules. (p.44)
  • BEIS should amend formal Financial Reporting Council guidance, or legislate, to give audit committees oversight of payment practices, along with a duty to report on payment practices within annual reports. (p.33)
  • BEIS should set up a ‘Help to Green’ initiative, to issue £5,000 vouchers for businesses to spend on qualifying energy savingproducts and services, a suggestion supported by the Institute of Directors and the Confederation of British Industry. (p.34)
  • The Government and the Financial Conduct Authority should work with industry leaders to address barriers that disproportionately affect women-owned businesses when trying to access certain financial products. (p.44)

Click below to download the full report