Trying to source new capital, such as bank loans, grants and private equity, is the most significant challenge for over a quarter of the UK’s mid-sized businesses, according to the latest research from accounting and advisory firm, BDO

BDO’s bi-monthly survey of 500 mid-sized businesses, which looks at the challenges and opportunities facing UK companies with a turnover between £10m-£300m, reveals nearly one in three (32%) have ambitions to access new finance, such as additional bank loans, government grants, private equity or venture capital, or via a listing on UK public markets in the next six months.

However, difficulties accessing finance are proving problematic and restricting growth ambitions. More than a quarter (27%) say it is one of their biggest challenges over the next six months, with a similar number (26%) now struggling to deliver on their growth plans, such as entering new markets or offering new products or services.

Manufacturers are struggling the most with challenges around accessing new capital (32%), with real estate and construction businesses following closely behind (31%). 

These findings come as high borrowing costs, driven by elevated interest rates, make it more challenging for mid-sized businesses to access and service debt finance. In addition, while official data suggests inflation may be easing, higher costs across the board remain a constant battle for businesses looking to grow. 

Businesses reported that high costs in the supply chain are a persistent problem. One in five (20%) are suffering from increased costs as a result of changes to trade policy and regulation, such as different tariffs or customs rules, while a similar number (18%) say costs such as fuel are too high.

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Business outlook improves after technical recession

Despite difficult trading conditions, mid-sized businesses remain cautiously optimistic. Over half (53%) feel more confident about the outlook for their business for the rest of the year compared with the second half of 2023, when the UK recorded a technical recession.

Many businesses surveyed were buoyed by the prospect of lower borrowing costs, as 27% expect a positive impact from future interest rate cuts. This outstrips concern from businesses who feel less confident, with one in five (20%) saying a cut may come too late to help improve their growth prospects. 

Business leaders are calling for the next government to help drive their growth in the long term. Over a third (36%) want to see the Government prioritise improving access to capital, for example by enabling smaller business banks to enter the market or through government grants. 

Almost a fifth (19%) want to see less complex regulation around listing on the London Stock Exchange, with a similar number (18%) hoping to see more progress on levelling up the regions outside London and the South East.

Commenting on this, BDO Partner, Richard Austin, said: “Access to finance is a huge contributing factor to UK economic growth. Businesses have the appetite to drive forward long-term growth plans, but the difficulties experienced in accessing the capital needed to fund that growth are proving unsurmountable for many. 

“Despite remaining resilient and realistic, these businesses need more support to achieve their ambitions. The mid-market is the engine of the UK economy, providing one in four jobs and over £1 trillion in revenues.

“The issues they are highlighting should not be overlooked by policymakers as their growth will play a key role in the overall economic recovery of the UK.”