Mid-Sized Businesses Struggle to Access Funds Amid Rising Interest Rates

Over 90% of Businesses Face Funding Challenges

Key Takeaways:

  • Research from BDO reveals that over 90% of mid-sized businesses in the UK are encountering difficulties in accessing funding and financing due to the recent wave of interest rate hikes by the Bank of England.
  • The inability to access capital is hindering expansion plans, stifling innovation, and impeding international collaboration for a significant portion of the business economy.
  • Business leaders emphasize the critical nature of addressing funding challenges to support budding entrepreneurs, startups, and SMEs in driving innovation, job creation, and economic growth.
  • Unlocking new options for fundraising, such as venture capital networks, is crucial for businesses to navigate the rocky economic climate and access the cash they need.

Funding Constraints Impact Expansion and Innovation

According to recent research conducted by BDO, over 90% of mid-sized businesses in the UK are facing challenges when it comes to accessing funding and financing. These struggles arise as the Bank of England has raised interest rates, creating obstacles for businesses seeking capital. The impact of these difficulties is far-reaching, with many companies experiencing limitations in their ability to expand, innovate, and engage in international collaboration. Funding constraints are stifling the growth potential of a significant portion of the UK business economy.

Richard Austin, a Partner at BDO, acknowledges the resilience demonstrated by mid-sized businesses during challenging times but highlights that access to capital has become a critical issue. The inability to secure the necessary funds is hindering their growth prospects and impeding their ability to capitalize on opportunities.

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Rising Inflation and Interest Rates Add to the Challenge

The research findings come amidst a backdrop of rising inflation in the UK. In May, inflation stood at 8.7%, reflecting the increasing cost of goods and services. Furthermore, the Bank of England recently raised interest rates to 5%, the highest level since 2008. These developments further compound the challenges faced by mid-sized businesses in accessing the funds they need to thrive.

Steven Mooney, CEO of FundMyPitch, emphasizes the vital role of funding for budding entrepreneurs, startups, and SMEs in driving innovation, job creation, and economic growth. However, he highlights that challenges persist for these businesses in the face of rising interest rates. In an uncertain economic climate, raising capital and accessing cash have become more difficult than ever. Mooney suggests that businesses need to explore alternative options for fundraising, extending beyond traditional banks. Greater access to venture capital networks and other investors can provide the necessary support for businesses to showcase their potential and contribute to economic progress.

The Ongoing Battle Against Inflation

Financial authorities, including the Bank of England, have acknowledged the ongoing fight against surging inflation and the resulting need for higher interest rates and borrowing costs. The Bank for International Settlements (BIS) has recently warned against easing off prematurely in the effort to combat inflation. According to the BIS, policy rates may need to remain high to ensure a decline in inflation and maintain overall price stability.

The combination of rising inflation, increasing interest rates, and borrowing costs creates a challenging environment for businesses seeking funding. It highlights the importance of exploring diverse fundraising options and establishing connections with venture capital networks and investors who can play a crucial role in driving economic growth.

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The struggle to access funds faced by over 90% of mid-sized businesses in the UK reflects the challenges brought about by rising interest rates and inflation. These funding constraints hinder expansion plans, curtail innovation, and impede international collaboration. In response, business leaders emphasize the necessity of unlocking new fundraising options beyond traditional banks. Access to venture capital networks and other investors is critical for businesses to overcome the current economic climate, raise the capital they need, and drive economic growth through innovation, job creation, and the pursuit of new opportunities.

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