Almost half (48%) of SMEs felt that British businesses are missing out on opportunities because of a reluctance to borrow, and 45% believe that the economy is being stifled because they won’t borrow.

Yet, almost a third (27%) of those SMEs are holding back the growth of their own business, due to a ‘fear of funding’, by refusing to take external finance, according to research by Ultimate Finance.

The research, conducted by BDRC Continental on behalf of SME funding partner Ultimate Finance, challenges industry perception that small businesses are not borrowing because of an access issue.

In fact, confidence in securing finance is high; 59% of SMEs were sure they would get the money they needed, if they applied, and 57% felt they had a good understanding of the finance options available to them.

Instead, this bigger issue around the ‘fear of funding’ stems from a belief that external funding results in a loss of independence (47%), that borrowing can cause more worries (44%) and that taking external funding is too risky in the current economic climate (37%).

Ron Robson, CEO of Ultimate Finance, commented: “It’s not good news for the UK economy, if SMEs understand the benefits of borrowing, yet do not seek the funding that could have a positive effect on their operation.

“In many ways it’s not a surprise; years of economic instability which preceded Brexit has led to a general uncertainty on ‘what next’.

“The bigger challenge to tackle is that SMEs have a fear of funding and are not seeking finance when they need it. This is contrary to messages that lenders aren’t lending, which is simply not the case; borrowing figures are down due to demand. This mixed communication is contributing to confusion and takes attention away from educating SMEs about the positive impact borrowing money can have.”

The report by Ultimate Finance also looked at how borrowing can support business growth, and found that on average 27% of SMEs that do borrow, attribute external funding as a key reason for their business growth.

For larger SMEs (with 50-249 employees) this number rose to over a third (35%).

Over a fifth (21%) of businesses that have borrowed recently, also felt that without external funding, they would not be in operation today.

Robson continued: “There is clear evidence that external funding can have a hugely positive impact on an SME.

“As well as the peace of mind that comes with knowing that the basic bills will be covered, the right funding can be used for positive business investment, for example to upgrade machinery, fulfil a large order or negotiate cash-upfront discounts with suppliers, all of which help to lead to growth.

““The funding sector and the government need to come together to help change the negative perceptions around borrowing.

“Only then can we start to instil a sense of confidence in borrowing in SMEs, and support them to grow.”

(Source: Ultimate Finance)