SMEs in Britain are increasingly concerned over their ability to gain funding in the run up to Brexit, a recent survey has revealed.

The study, commissioned by specialist insurer Hiscox, has found that recent economic and political uncertainty has adversely affected business confidence, and caused concern for the future as Britain’s withdrawal from the EU becomes nearer. This should come as no surprise, as 38 percent of the 500 businesses surveyed admit to accessing EU funding.

Facing funding challenges

Despite many funding options being made available to new businesses, 36 per cent of business owners said a lack of choice was the most common single challenge they faced when looking for funding. Moreover, 28 per cent of businesses cited a lack of eligibility as the reason holding them back from obtaining finance and a further 25 percent said market competition was their key challenge.

What emerged from the survey was that one in five businesses was still unaware of the variety of funding options available to them.

Banks still the “go-to” for funding

Despite the arrival of new finance options for start-ups like crowdfunding and peer-to-peer loans, most small businesses still turn to banks. Three-quarters of businesses surveyed used bank loans for funding over the last five years.

Other popular funding choices were EU funding and equity funding (both received by 38 per cent of businesses over the last five years).

The fall-out of economic uncertainty

The survey looked at other factors influencing the financing of Britain’s small businesses. Almost a third of businesses surveyed said economic uncertainty had been the biggest factor impacting their growth in the last five years. In fact, 18 per cent more businesses found economic uncertainty affected their growth than competition within their own industry.

Another cause of concern for Britain’s businesses is the availability of skilled workers, with 10 per cent of businesses facing obstructions to their growth due to a lack of skilled personnel. With the Institute for Public Policy Research finding that employers in Britain are currently spending over £6 billion less on training per year than the EU average, and the prospect of visa complications for foreign workers following Brexit, the growing skills’ gap could further hinder business growth in Britain.

“The European Investment Fund has provided almost £500 million annually to support smaller British firms aspiring to grow and scale-up. More than half of FSB members believe that EU funding for access to finance should be prioritised and maintained post-Brexit,” says Federation of Small Businesses (FSB) national chairman Mike Cherry, said. “It is critical that this level of investment activity is replicated after the UK leaves the EU.”

“Whatever model is adopted by government, the British Business Bank (BBB), which already plays a leading role in promoting access to finance in the UK, should be at the heart of it. It will continue to play a key role as the UK looks to redefine how small businesses are provided the resources they need to invest, expand and scale-up.”

“We will actively be reaching out to government to ensure that they get this support right so that all small businesses, in every part of the country, are aware of the finance options available to them and access the right investment at the right time.”

A fall in bank lending

Responding to a £698 million fall in bank lending to non-financial businesses in July and reports that the European Investment Fund (EIF) and European Investment Bank (EIB) are withholding funds from the UK, Cherry’s concerns now are that these trends could threaten small business finance.

“These figures confirm that small business borrowing is down, corresponding to lower investment intentions and confidence levels. Only one in seven small firms are currently applying for external finance, with demand for bank loans falling significantly over the last year, although this is not driven by a switch to alternative lending,” he says.

“These trends add to a convergence of factors that could threaten small business finance, investment and growth ambitions in the medium-term. Reports that the EIF and EIB may already be starting to withdraw support in the UK have raised the alarm, while the Funding for Lending scheme ends in January. This makes the government’s extra commitment of resources for the British Business Bank and a National Investment Fund even more important, and we look forward to feeding in to the Treasury’s Patient Capital Review.”

A botched withdrawal from the EIF and EIB would turn a currently mixed outlook into a decidedly bleak one, according to Cherry. “We need to see small firms confident to apply for finance for growth, with the Government clearly mapping out what will eventually replace the half a billion pounds of EIF support received in recent years.”