What funding is available to support UK-based SMEs?

Global inflation continues to soar despite efforts by the Bank of England (BoE) and other central banks to combat this through aggressively raising interest rates.

The spike in inflation is placing considerable pressure on households but is also being felt acutely by Small and Medium-sized enterprises (SME).

According to the National Federation of Self-Employed and Small Businesses (FSB), one in seven small businesses expect to downsize or even close between August 2022 and 2023.

With these pressures likely to remain entrenched for some time, it’s important SMEs are fully aware of what funding and grants may be available to support them through this highly uncertain economic landscape.

The mini-budget

Chancellor Kwasi Kwarteng’s mini-budget, delivered on 23 September caused some major disruption in financial markets. But it also outlined some support for businesses.

In addition to a 6-month cap on energy prices, Kwarteng announced a planned rise in corporation tax would be halted, leaving the rate at 19%.

The 1.25% rise in National Insurance tax, introduced in April this year, is also being reversed according to Kwarteng, who claims the move ‘will save 920,000 businesses almost £10,000 on average next year.’

The Annual Investment Allowance will remain at £1m annually rather than being reduced to £200,000, granting businesses 100% tax relief up to this value, while regional investment zones will unlock tax cuts and softer planning regulations for certain areas.

Nevertheless, operational costs remain rocket-high and for some businesses, the Chancellor’s new measures will be insufficient to keep them in profit. Moreover, Ed Rimmer – Chief Executive of Time Finance – draws attention to the lack of support for small businesses specifically, which prevents them from making investments for growth.

While the Chancellor’s mini-budget put forward some promising support measures economists were critical regarding the level of government borrowing proposed. The pound crashed against other currencies in the wake of Kwarteng’s announcement, as one economist said:

‘The announcement of the largest tax cuts since 1972 to boost growth and stave off a recession that has already started, has triggered a crash in the pound and the bond market.’

An intervention from the Bank of England (BoE) has helped the pound to strengthen against its peers in the interim, but the fallout from the mini-budget could ultimately offset the support outlined for business.

Sector-specific government approved finance

The UK government advertises a variety of monetary support packages to businesses based upon their service offering and their location, or to help them upskill in a particular way. Also available are counselling services to help businesses identify which support packages they may be eligible for.

The Access to Finance scheme helps small-to-medium sized businesses to work out their funding requirements and suggests funding opportunities available. The scheme is available in Greater Manchester and Lancashire at the time of writing, although similar programmes are available across Hertfordshire, Norfolk and Suffolk.

In terms of funding, BCRS business loans are available to companies located in the West Midlands, including Gloucestershire, who have been unable to secure finance from banks. Businesses can borrow between £10,000 and £150,000, with a repayment period between 1 and 7 years.

Grants are available to some businesses in Buckinghamshire via the Buckinghamshire Business Growth Programme, which awards up to £5,000 to established businesses looking to grow and improve.

To help SMEs identify appropriate funding sources more efficiently, the government website also provides access to Better Business Finance. This service can direct business owners to appropriate finance providers, with the help of impartial financial experts.

Finance for businesses operating abroad

There are various funding opportunities available for businesses operating abroad, to support with international development projects or else to strengthen UK trade ties.

The UK government offers Official Development Assistance (ODA) funding to businesses seeking to address certain developmental hurdles such as gender equality, poverty reduction and pollution. Businesses helping to address such issues may be eligible.

Another source of funding is the UK Research and Innovation (UKRI) body. UKRI provide targeted funding across various projects, in particular supporting UK researchers to collaborate with experts overseas; there are also innovation grants for businesses to develop new products, processes or services.

Up until March 2023, the Department for International Trade (DIT) can also help, with £38m-worth of co-investment grants to award to SMEs seeking to internationalise. SMEs can apply to the European Regional Development Fund (ERDF) online with support from DIT’s trade advisors and digital services firm Capita.

Other forms of finance

Guy Phillips, Head of Growth Capital at Santander UK, identifies two common funding strategies used by SMEs seeking finance: debt funding and equity funding. As both of these avenues mean the funding borrowed will need to be paid back, they are only recommended for businesses with a clear growth trajectory.

Another option, perhaps less risky for businesses struggling to make ends meet, is asset finance.  Asset finance allows businesses use of equipment, from farm machinery to aircraft, without the payment of an upfront sum.

Use of certain equipment may allow SMEs to upscale production or increase efficiency to boost company profits. The extra revenue can be used to pay for the lease of the equipment in arranged instalments; meanwhile, the asset provider covers the cost of maintenance and management overheads.

Key Takeaways

Every business is different and some finance options will suit certain businesses better than others. With every application for funding, it’s important to check the eligibility criteria required and be absolutely honest about the position the business is in.

Borrowing in particular is a risky strategy for businesses without a guaranteed source of revenue, as loans will need to be repaid regardless of how the business performs. Safer options may include grants and awards.

Finally, there is no shame in admitting that a business is struggling. To minimise revenue loss, another money-saving mechanism is downsizing – a process which can be reversed as profit margins allow.