Barriers to small firms’ access to finance could hold back UK economic recovery, new report warns

Press Releases 30 Dec 2022

The "Credit Where Credit's Due" report highlights concerns around access to finance among small businesses, which will be crucial to any future economic recovery

  • New Federation of Small Businesses (FSB) report sets out the challenges around finding and being approved for funding among small firms
  • The Credit Where Credit’s Due report finds widespread uncertainty among small businesses as to where to get information about types of finance available to them, along with a reduction in options and higher interest rates offered
  • FSB sets out comprehensive recommendations to improve the funding and investment landscape for small firms, including reversing the recent cut to R&D tax credits and introducing a VAT-based capital investment incentive.

Two thirds of small firms (66%) plan to make some form of investment in their business by 2024, but under half (49%) feel they are fully aware of the different types of financing options available to them, new research has found.

FSB’s new report, Credit Where Credit’s Due, draws together findings which paint a concerning picture around access to finance for UK small businesses, and calls for action to stop the lending gears from grinding to a halt – as happened after the 2007 credit crunch – which, if history is allowed to repeat itself, would risk undermining the country’s economic recovery.

Three in five small firms (59%) have applied for finance over the past five years, although the extraordinary circumstances of the pandemic meant the proportion of businesses taking on debt – many of them for the first time – grew. Small and medium-sized enterprises are now collectively carrying around £36 billion more in debt than they were in January 2020, pre-Covid.

Access to finance is vital for the small business sector as a whole, allowing firms to invest and grow. Finance options are also vital to keep small businesses afloat in choppy waters due to the cost of doing business crisis, skyrocketing energy costs, supply and travel disruption, and the ever-present scourge of late payments.

However, only two in five small businesses (38%) say they feel it is easy to find answers to their questions on financial applications, with three in ten (29%) saying they thought that unfair clauses and provisions were included in applications.

Meanwhile, the success rates of finance applications have dropped precipitously since the Covid loans era, with under half (46%) of applications successful in Q3 2022, compared with a pre-Covid success rate of nearly two in three (64%). The smaller a business is, the less likely its request for finance is to be approved, our research found.

The interest rates offered to small business customers have also risen, with nearly a third of small firms who applied for finance in Q3 2022 offered a rate of 10% or above.

In light of the findings, FSB is urging the Government, financial regulatory bodies and other stakeholders to take action to improve the financing landscape for small businesses, to give them more choice and clarity around the options available to them:      

  • The Government should reverse direction from its announcement on Research and Development tax credits at the Autumn Statement that will seriously reduce spending on R&D by SMEs in the UK economy.
  • 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 business-friendly super-deduction.
  • The British Business Bank should encourage the use of the Bank Referral Scheme, where lenders are required to share details of SMEs they reject for finance, so those businesses can be approached by alternative lenders, and should also expand the number of banks and approved alternative lenders in the scheme.
  • The Financial Conduct Authority should reverse its decision to move fees and levies to a regressive flat-fee system, which discourages smaller finance providers from entering or remaining in the market, and ultimately limits the range of finance available to small businesses. 
  • The Start Up Loans scheme should be expanded from 11,000 to 15,000 loans per year, to encourage more people to give entrepreneurship a shot. 
  • 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.
  • 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. A piece of equipment could be second-hand, but could still represent a significant upgrade to a small firm, helping them to boost their productivity.
  • The Government should announce that the Seed Enterprise Investment Scheme will not be closed down in 2026, to provide greater certainty and longevity to users of the scheme’s investment plans. The investment limit for the scheme should be uprated in line with inflation each year.

Martin McTague, FSB’s National Chair, said: “Small businesses that cannot access finance are small businesses that are cut off from opportunities to grow and expand. It’s that simple.

“As a country, we cannot afford to have a repeat of the post-credit crunch scenario, where the dreams of thousands of entrepreneurs and business owners were crushed by a withdrawal of finance options, leaving them unable to continue, and deepening the UK’s economic woes.

“Many small firms now are in a highly precarious position, carrying debts from the pandemic, with the Bank of England raising the base rate, and with funding options getting scarcer and costlier.

“Our report pulls together various strands which together add up to a worrying picture of potential devastation, if the situation is allowed to drift.

“There is, luckily, a lot that can and should be done by the Government and by other bodies to improve the funding landscape for small firms, getting productive capital into businesses with enormous potential for growth.

“Reversing the recent, disastrous decision to cut R&D tax credits would send a strong signal that the Government is listening to what small firms need, and is backing the deep wells of innovation and enthusiasm which exist among start-ups, entrepreneurs, and small businesses alike.

“The recently announced consultation on late payments – a dead hand around the throats of millions of small firms, cutting off their cash ‘oxygen’ and causing vast amounts of unnecessary and unethical stress – is a positive step, although we know what needs to be done: the audit committees of large corporates need to publish details of payment practices in their supply chains in their annual reports. What’s stopping the Government from acting now, rather than after a months-long consultation period?

“Ultimately, small firms are looking for signs that they won’t be punished for looking to invest and expand. We’ve set out a comprehensive programme which would transform small businesses’ finance options, boosting economic growth and empowering entrepreneurship – it’s now up to the Government to move from words to deeds, to get vital funds to the small businesses who will transform them into new products, new jobs, and new premises, providing fresh hopes of recovery amid the economic gloom.”


Notes to Editors
1) FSB surveyed 819 small businesses in January 2022; the report also utilised FSB's quarterly Small Business Index data (most recently the Q3 2022 iteration, which surveyed 1,383 small businesses in September and October), along with Bank of England and British Business Bank public data.
2) The full Credit Where Credit’s Due report is available here.

Media contact 

Anna Slater

Anna Slater

Deputy Head of Media and Communications

About FSB

As the UK’s largest business support group, FSB is the voice of the UK’s small businesses and the self-employed. Established over 40 years ago to help its members succeed in business, FSB is a non-profit making and non-party political organisation that’s led by its members, for its members. As the UK’s leading business campaigner, FSB is focused on delivering change which supports smaller businesses to grow and succeed.

FSB offers members a wide range of vital business services, including access to finance, business banking, legal advice and support along with a powerful voice in Government. Each year FSB also runs the UK’s Celebrating Small Business Awards. More information is available at You can follow us on twitter @fsb_policy and on Instagram @fsb_uk.