Business and Trade Committee appointed by UK Parliament ignores the SME Funding Crisis

In July 2025, the UK's Department for Business and Trade published it's Strategy setting out a long-term plan for government support for small and medium-sized businesses (SMEs). On February 11th 2026, The Business and Trade Committee published it's response correctly identifying a range of cost pressures - including rising National Insurance contributions, energy costs, business rates, and late payments - that are placing enormous strain on SMEs across the country.

However, the Committee made a significant and consequential omission from the report: the widespread and systemic difficulty SMEs have in accessing funding. This is not a peripheral issue. It is the foundational barrier that determines whether a SME can survive the very pressures the report describes - let alone grow.

The Scale of the Problem

At the heart of the problem is cashflow. The data on SME funding rejection rates is stark and demands immediate parliamentary scrutiny. Across the SME community, evidence indicates that over 90% of applications for business grants and equity investment are declined alongside 50% of loan applications. These are not the figures of a functioning fundraising ecosystem - they represent a structural failure that is strangling businesses which might otherwise be viable, growing, and employing people.

As an SME owner, I have spoken with 000s of small business owners and gathered evidence from peers and stakeholders across the sector. The pattern is consistent: SMEs with sound fundamentals, credible propositions, and genuine growth potential are being turned away by grant providers, investors and lenders at an extraordinary rate. The reasons given are usually opaque, the application and assessment processes are not fit-for purpose and education/training to help SMEs become fundable is inadequate.

The Committee's report, in effect, diagnoses a patient's symptoms while overlooking the fact that they have been denied access to medicine.

Why This Omission Matters

The cost pressures identified in the Committee's report - higher employer National Insurance contributions, energy costs, inflationary wage pressures, and the VAT registration threshold - all share a common thread: they require capital to manage. SMEs absorb cost shocks through reserves, grants, credit facilities or investment. When those financing routes are closed off, even a well-managed business has no buffer.

Late payment - rightly highlighted in the report - is a particularly acute example of this interdependency. A SME owed money by a large corporate customer cannot simply wait: it has payroll, rent, and supplier invoices to meet. The conventional remedy is an invoice finance facility or an overdraft. Yet these are among the products most commonly declined to SMEs, often on the grounds of insufficient trading history, lack of tangible assets, or risk thresholds that bear no relationship to the actual creditworthiness of the business.

Government-backed schemes, including those administered through the British Business Bank, are often cited as the answer to this problem. In practice, however, many SMEs find these schemes inaccessible: the application processes are burdensome, a directors personal guarantee or collateral over their home is invariably required and is ill-suited to early-stage businesses, resulting in most SMEs that need a loan, not applying.

The existence of these schemes creates a "policy comfort blanket" - a perception that the problem is solved when in reality it is not.

Specific Issues The Committee Ignored

Bank Lending and Credit Refusals

The criteria applied by mainstream lenders to SME loan applications have become increasingly risk-averse since 2008. The result is a significant and well-documented market failure in SME credit provision, particularly for those with a trading history of less than 2 years which lack the property or other physical assets banks require as security. The Committee should have examined whether the current regulatory environment — including capital adequacy requirements — is inadvertently contributing to this tightening, and what reforms might be appropriate.

Cost and Availability of Finance

Where SMEs can access credit, the cost is often prohibitive. Interest rates on SME lending remain materially higher than those available to larger businesses, reflecting a risk premium that may not be justified by actual default rates. The Committee should have examined whether greater transparency in SME lending pricing, and improved credit risk assessment processes, could improve the ability of SMEs to obtain loans that are required to enable them to invest and grow.

Grant Funding

The rejection rate of 90% for SME grant applications by for example, Innovate UK is, in itself, a figure that warrants serious scrutiny. While competitive grant programmes will inevitably decline most applicants, a rejection rate of this magnitude raises questions about whether the grant landscape is properly calibrated to the needs of the SME population it is ostensibly designed to serve.

Further, most SMEs find that they fall outside the narrow criteria of innovation-focused or sector-specific funds, leaving them with no viable grant route whatsoever.

Equity Investment

Access to equity investment — from angel investors, venture capital firms and institutional investors is incredibly difficult with over 95% applications being declined.

The Local Government Pension Scheme (LGPS) exemplifies the broader problem. With over £400 billion in assets across 87 pension funds in England and Wales, the LGPS represents one of Europe's largest pension systems. Its members—teachers, nurses, council workers, emergency services personnel—form the fabric of local communities and local economies. Yet LGPS investment in SMEs is negligible.

Investment is highly geographically and sectorally concentrated. Businesses outside London and the major city-regions, and those in sectors perceived as lower-growth, face a significant structural disadvantage in accessing the equity markets.

The Enterprise Investment Scheme and Seed Enterprise Investment Scheme provide valuable tax incentives, but the pipeline of investment that flows through these schemes is far from evenly distributed.

Action Required

The UK’s SMEs are the backbone of the economy. They employ the majority of the private sector workforce, anchor communities, and generate the innovation and competition that drives productivity. The Business and Trade Committee should have completed the picture by addressing the funding crisis that sits at the heart of SME vulnerability — and which, if left unexamined, will continue to limit the effectiveness of any policy response to the challenges the report ably describes

On 2nd March, I therefore wrote to the Committee asking why it omitted to report on the  widespread and systemic difficulty SMEs have in accessing funding. Further, I requested the Committee consider the following actions:

First, recommend the Government call for evidence specifically on SME access to finance, with a view to establishing the true scale of rejection rates across lending, grants, and investment, disaggregated by sector, geography, and business stage.

Second, recommend the Government scrutinise the effectiveness of government-backed finance schemes, including the British Business Bank and its subsidiary programmes, and assess whether they are genuinely reaching the SMEs that need them most.

Third, recommend the Government examine whether the regulatory framework governing bank lending to SMEs is appropriately balanced, and whether reforms to encourage lending — particularly unsecured lending to SMEs — are warranted.

Fourth, recommend the Government call for evidence specifically on the education and training needed to help SMEs improve the quality of grant, investment and loan applications.

Fifth, recommend the Government conduct a comprehensive review of the SME grant landscape to assess whether existing provision is fit for purpose, and whether a simpler, more accessible public grant framework could better support small businesses..

Sixth, recommend the Government conduct a comprehensive review of the SME investment landscape to assess whether existing provision is fit for purpose.

Seventh, recognise, in any future report or supplementary findings, that access to finance is not a separate issue from the cost pressures already identified — it is the mechanism through which businesses manage those pressures. Without adequate finance, the other recommendations in the report risk being of limited practical value.

To date, I've not received a response.