The investment confidence dilemma: why are more UK SMEs not mobilising liquidity to grow?

By many measures, the UK’s small and medium-sized enterprise (SME) finance market should be more of a success story. Capacity exists across the system: high-street banks, challenger banks, specialist lenders, asset finance providers and government-backed schemes all signal strong financing liquidity. Yet the lived experience for many SMEs – and the macro data – tell a more uncomfortable truth. Although the UK has a great deal of finance availability, there seems to be a confidence and awareness gap that suppresses finance consumption by our SMEs – the country engine of entrepreneurial growth.

That gap matters. For SMEs, external finance is often the bridge between ambition and action: investment in machinery, equipment, purchased software, new technology, training, and new job creation. When finance demand weakens, investment slows – and with it, productivity and competitiveness. By the same token, the ability to invest in capital equipment is an essential enabler of productivity – and productivity improvement is on the lips of all commentators in this country[1].

Liquidity is not the constraint

Let’s start with what is not the problem. The UK’s financial system is not short of funding sources for smaller firms.

• The Finance & Leasing Association (FLA) most recently reported (2025) a modest upturn in new asset finance for SMEs – around 4%[2].  Asset finance new business as a whole grew by just 1%[3].
• Yet the volumes of liquidity remain substantial. FLA members provided over £40bn to businesses and the public sector, as well as financing around one-third of UK investment in machinery, equipment and purchased software. That’s a significant pool of investable capacity tied directly to productive assets[4].
• In early January 2026, the UK government announced a new £11bn lending package from major banks – backed by UK Export Finance guarantees of up to 80% of eligible loans – explicitly aimed at improving business access to growth-enabling finance[5].
• Meanwhile, the British Business Bank (BBB) reports £62.1bn of gross lending to smaller businesses in the last reported year, with £37.3bn (60%) provided by challenger and specialist financiers – evidence of breadth on the supply side, even as demand remains uneven[6].

Taken together, these figures are hard to reconcile with any narrative that there is a credit squeeze or that a range of financing options are unavailable for eligible SMEs[7]. The more pressing question is: why isn’t more of it being used by SMEs to invest and grow?

SME financing demand has weakened over time

Despite available liquidity, multiple credible sources point to a sustained, multi-year softening in SME lending and appetite – particularly through traditional channels.

“The UK excels at innovation but struggles with scaling and commercialisation as well as investment in plant and equipment which impacts our productivity. To address that, we need coordinated action on technology deployment, skills development and improved access to finance for manufacturers.”^[8]

– Brian Holliday, Managing Director, Digital Industries at Siemens UK and Ireland, and Co-Chair of Made Smarter

For instance, a Financial Times report noted the decline in SME lending in 2025 compared with 2011[9]. Separately, Bank of England analysis has long emphasised behavioural frictions that restrict demand: SMEs often don’t shop around, rely heavily on incumbent relationships, and frequently self-fund rather than borrow – even where borrowing could support greater growth[10].

This continues the demand shift from historical surveys. The BBB’s Ipsos business finance survey reports that only 26% of SMEs sought external finance in the last three years in 2024, down from 39% in 2022 (and 30% in 2023)[11]. And other indicators corroborate this trend – business investment declined quarter-on-quarter in the last few months of 2025[12]. When barely a quarter of SMEs are even entering the market for finance, it becomes easier to understand why aggregate lending can fall despite abundant financing availability.

The market remains concentrated – and big-player retrenchment is real

One structural factor is concentration. While SME lending sources have diversified, many SMEs still default to their principal high-street bank. This is not simply habit; it’s also about perceived safety, familiarity and fear of rejection elsewhere.

But concentration creates fragility, especially when large incumbents restrict their product lines. The last five years have seen a number of product withdrawals from the UK SME finance market[13]. For many SMEs, these financing products are not a discretionary ‘nice-to-have’; for many smaller firms they’re practical working-capital tools to manage critical cash-flow and working capital needs. Tightening or closing access to certain SME products has been a visible pattern across the market in recent years[14].

Might it be said, then that SMEs often stay anchored to a small set of familiar providers at precisely the moment those providers are simplifying and pruning? If so, that mismatch could suppress demand and narrow perceived options.

What is actually happening on the demand side?

The “demand problem” is not one single thing. It’s a range of behaviours and frictions – many of which are solvable.

1. Incumbent loyalty and limited search
   Bank of England analysis highlights that many SMEs consider only one provider when seeking finance, with “hassle and time” acting as deterrents to shopping around. This is rational behaviour for busy operators – but it produces an information deficit and a weaker negotiating position.
2. SMEs underestimate total borrowing capacity
   Many firms treat finance as a single yes/no decision with their main bank rather than a portfolio decision across multiple sources (bank lending, asset finance, specialist lenders, and structured facilities). When SME finance leaders don’t see the full menu, they assume “no” too early.
3. Low awareness of equipment finance and alternatives
   Equipment finance solutions can be an elegant way to fund technology while preserving working capital. The UK government’s own call for evidence on small business access to finance points to the scale and relevance of asset finance, with 59% accounted for by SME lending (as cited within that publication)[15]. The point is not that every firm should use financing tools; it’s that too many firms never seriously evaluate the option.
4. Risk perception and “can we afford it?” thinking
   Finance directors, owners and founders often frame affordability defensively – cost first, value second. Yet the right question for productive investment is typically: What is the ROI? What growth becomes possible? What productivity can be gained? What energy efficiency can be enabled? A repayment schedule is not just a cost line; it can be the engine of a capability upgrade, with the consequent uptick in revenues and – just as importantly – margin. There is a tendency, also, to compare apples with oranges – namely comparing the cash price of equipment, rather than its whole of life costs, to the finance cost.
5. The growing financial burden on SMEs
   SMEs are coming under increasing financial pressure. Official survey data shows the primary barriers to SME growth include high energy prices (56%), taxation (45%), and regulation/red tape (41%)[16]. These all increase operating costs and reduce net returns. This has had a tendency to discourage many from signing finance agreements for several years. SMEs need to feel confident to commit.
6. Complexity aversion
   SMEs routinely describe finance as complex. This is not an excuse; it’s a design and communications challenge for the industry. Process, terminology and documentation should be simplified where possible – without obscuring important detail or clear explanations of risk or terms.
7. Too few OEMs / Manufacturers, Vendors and Distributors embed finance at the point of sale
   The purchasing moment – when a firm is deciding on technology, equipment, machinery, vehicles or software – is the natural time to consider finance. Leading vendors recognise this and report a typical uplift in sales of 20% compared to selling without integrated financing options[17]. These vendors realise they have something else of value to sell (rather than simpler a sales enabler for their equipment). Yet so many OEMs and vendors still treat finance as “someone else’s problem”, rather than an integral part of their own value proposition

Policy is on the right track – but execution needs a wider coalition

Regulators and public bodies have clearly signalled that improving market outcomes and supporting growth are priorities.

The FCA’s 2025–26 annual work programme sets out delivery against four priorities, including “supporting growth”[18]. The FCA’s five-year strategy (2025–2030) explicitly frames its aims around supporting growth, deepening trust, and improving lives – while emphasising that it cannot deliver alone and must collaborate across the ecosystem[19].

On the market-building side, the British Business Bank continues to play a central role through its research, guarantee schemes and interventions designed to broaden finance supply and improve access – while also documenting the demand-side reluctance that persists across the SME population.

So yes, there is momentum. But the missing ingredient is a practical, scaled mechanism for awareness and confidence – not just for SMEs, but for the channels that influence SMEs.

One part of the system is working exceptionally well: commercial finance brokers.

Brokers’ trade association the National Association of Commercial Finance Brokers (NACFB) reports that the broker channel represents a very substantial share of SME finance activity, with lenders attributing 67% of SME portfolios to intermediaries on average in its cited research, and estimating a £38bn broker-led SME lending market[20].¹¹ The broker community is often the translator between a complex funding market and a time-poor SME leader. That intermediation is valuable and should be celebrated as they are proactively making finance easy to understand and consume.

However, the success of the broker channel cannot substitute for the fact that if more technology vendors offered financing at point of sale, then take-up of financing options would be greater, and more investment in growth technologies for UK SMEs would be enabled. Growth cannot happen without that investment, as is attested by many authoritative sources[21].

What next? Make finance visible where investment decisions are made

If we accept that liquidity exists, the agenda becomes clear: lift SME finance demand by improving understanding, awareness and confidence – especially for asset and technology investment.

That means finding compelling ways to further mobilise the OEMs and their sales channels:

• Prove to vendors that finance sells more: higher conversion, larger deal sizes, faster decisions.
• Make finance simple to explain: clear terms, clear benefits, minimal jargon.
• Demonstrate working-capital logic: financing equipment can be better value than tying up retained cash that could fund growth. Working capital needs to be kept intact for immediate or tactical needs (a marketing push, and extra salesperson, keeping day-to-day cash needs funded, etc).
• Introduce lightweight pre-screening so that customers unlikely to qualify aren’t put through an avoidable rejection cycle: protecting trust while improving efficiency for lenders and brokers. After all, tightening regulation and elevated insolvency rates[22] (though falling from 2022 highs) has had an effect on who qualifies for different forms of finance[23].

According to McKinsey[24], embedded finance (‘EF’ – this commentator’s term for finance that is offered at point of sale when an SME invests in technology or equipment for their company) will become an increasingly important means of customer acquisition for financial services providers. In one major European market, the analyst found that the acquisition cost of a qualified SME lending lead is 15 to 20 times higher than an EF lead. The same study notes that currently only 4-6 percent of SME lending is through EF. So, the room for expansion of integrated finance through OEMs is huge.

This is not about over-extending debt – but is about ensuring finance is available to enable business expansion. It is about ensuring that when an SME is ready to invest – particularly in equipment and technology – the finance options are easily found and easily understood.

Conclusion: a demand problem that the UK cannot afford to ignore

There’s plenty of available finance waiting to be offered to creditworthy UK SMEs. Indeed, the evidence points to large volumes of financing capacity, across banks, challengers and asset finance providers[25].

And yet SME “finance consumption” has softened over time, reinforced by concentration effects, product retrenchment by some incumbents and a persistent confidence-and-awareness gap among SMEs[26].

Many positive initiatives are in motion. But if we want stronger SME investment to 2030 and beyond – especially in machinery, technology and productivity upgrades – then the next phase must be coalition-driven: regulators, trade bodies, lenders, brokers and OEMs working together to make finance simpler, more visible, and more connected to real investment decisions.

That is how we turn abundant liquidity into real economic growth.

Notes:

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[1] For instance: https://www.reuters.com/business/world-at-work/uk-must-be-tough-reverse-productivity-slippage-bcg-says-2026-02-23/; https://www.productivity.ac.uk/news/making-strategy-a-habit-a-promising-light-touch-approach-to-improving-sme-productivity/; https://niesr.ac.uk/blog/are-there-early-signs-uk-productivity-revival; https://www.pwc.co.uk/economic-services/ukeo/ukeo-november-2019-productivity-puzzle.pdf

[2] https://fla.org.uk/news/asset-finance-new-business-grew-by-1-in-2025/

[3] https://fla.org.uk/research/state-of-the-market-2026/

[4] https://fla.org.uk/news/asset-finance-new-business-grew-by-11-in-september-2025/

[5] https://www.gov.uk/government/news/uk-lenders-step-up-with-11-billion-push-to-back-british-businesses

[6] https://www.british-business-bank.co.uk/news-and-events/news/challenger-and-specialist-bank-lending-hits-record-high-overall-proportion-smaller-businesses

[7] See, for instance: https://committees.parliament.uk/committee/697/financial-services-regulation-committee/news/211242/financial-services-regulation-committee-publishes-private-markets-report/; https://www.allianz-trade.com/en_GB/insights/economic-research/uk-sms-s-market-watch-march-2026.html

[8] https://www.linkedin.com/posts/brian-holliday_on-tuesday-this-week-i-felt-privileged-to-activity-7321514532135190529-ebUU/

[9] https://www.ft.com/content/4c03066c-8325-432c-8eed-66d84b114ec3

[10] https://www.bankofengland.co.uk/-/media/boe/files/fintech/open-data-for-sme-finance.pdf

[11]  https://www.british-business-bank.co.uk/sites/g/files/sovrnj166/files/2025-03/ipsos-business-finance-survey-2024.pdf

[12] https://www.tradingview.com/news/te_news:525242:0-uk-business-investment-drops-in-q4/

[13] For instance: https://www.finextra.com/newsarticle/47093/lloyds-to-shut-invoice-financing-ft-reports; https://www.reuters.com/business/finance/bank-ireland-wind-down-british-corporate-lending-business; https://www.santander.co.uk/assets/s3fs-public/documents/santander_asset_finance_plc_1.pdf; https://heligangroup.com/blog/abn-amro-exit-the-uk-asset-based-lending-market

[14] https://www.ukfinance.org.uk/news-and-insight/press-release/gross-lending-smes-in-2024; https://www.british-business-bank.co.uk/about/research-and-publications/small-business-finance-markets-report-2025; https://www.gov.uk/government/calls-for-evidence/small-business-access-to-finance/small-business-access-to-finance; https://committees.parliament.uk/committee/158/treasury-committee/news/201265/small-businesses-are-facing-needlessly-tougher-circumstances-due-to-actions-of-banks-and-regulators-mps-find; https://publications.parliament.uk/pa/cm5901/cmselect/cmtreasy/517/report.html; https://www.reuters.com/world/uk/uk-inquiry-finds-banks-shut-142000-small-business-accounts-year-2024-02-27

[15]  https://www.gov.uk/government/calls-for-evidence/small-business-access-to-finance/small-business-access-to-finance

[16] https://www.gov.uk/government/publications/backing-your-business-our-plan-for-small-and-medium-sized-businesses/backing-your-business-evidence-annex-web-version?utm_source=chatgpt.com

[17] https://www.themanufacturer.com/articles/smart-finance-makes-sales-from-vendors-and-oems-25-more-profitable/

[18] https://www.fca.org.uk/publications/business-plans/annual-work-programme-2025-26

[19] https://www.fca.org.uk/publication/corporate/our-strategy-2025-30.pdf

[20] https://nacfb.org/nacfb-members-fuel-70-of-uks-38bn-broker-led-sme-lending/

[21] Such as: https://assets.publishing.service.gov.uk/media/688a43d0b223ff124d388903/sme-digital-adoption-taskforce-final-report.pdf; https://assets.publishing.service.gov.uk/media/6857e0995225e4ed0bf3ceb5/dsit_technology_adoption_review_web.pdf; https://www.enterpriseresearch.ac.uk/publications/technology-adoption-and-productivity-evidence-from-uk-smes; https://www.productivity.ac.uk/wp-content/uploads/2025/07/WP055D4.pdf

[22] https://www.gov.uk/government/statistics/company-insolvencies-february-2026/commentary-company-insolvency-statistics-february-2026  

“Company insolvencies peaked during the 2008-09 recession, following the gradual decline seen over the early 2000s. Volumes rose during 2018 and 2019, before falling to the lowest monthly volumes on record during the COVID-19 pandemic in 2020 and 2021, when government support measures were in place. CVL numbers then increased in 2022, exceeding pre-pandemic levels while compulsory liquidations and administration numbers remained low. Insolvency numbers increased further in 2023 to a 30-year high, with CVLs at a record high and compulsory liquidations at levels similar to 2016-19. The 2025 total was slightly higher than 2024, as an increase in compulsory liquidations outweighed decreases in other insolvency types.”

[23] https://www.stevens-bolton.com/insights/102mdkf/2025-annual-insolvency-statistics-the-new-normal

[24] https://www.mckinsey.com/industries/financial-services/our-insights/embedded-finance-how-banks-and-customer-platforms-are-converging

[25] https://fla.org.uk/news/asset-finance-new-business-grew-by-11-in-september-2025/; https://www.gov.uk/government/news/uk-lenders-step-up-with-11-billion-push-to-back-british-businesses; https://www.british-business-bank.co.uk/news-and-events/news/challenger-and-specialist-bank-lending-hits-record-high-overall-proportion-smaller-businesses

[26] https://committees.parliament.uk/publications/44604/documents/221576/default/; https://www.bankofengland.co.uk/-/media/boe/files/fintech/open-data-for-sme-finance.pdf; https://www.british-business-bank.co.uk/sites/g/files/sovrnj166/files/2025-03/ipsos-business-finance-survey-2024.pdf;