FINANCE SHORTFALL THREATENS JOB CREATION AND INNOVATION ACROSS UK SMALL BUSINESSES
UK SMEs Warn of Growth Slowdown as Finance Pressures Intensify Before Autumn Budget
More than half of UK small businesses say they will need external finance to fund growth in 2026, raising concerns about a widening investment gap as owners brace for potential tax increases in the Autumn Budget. New research from Novuna Business Finance indicates that 53% of small business leaders now require funding to advance expansion plans, with the greatest pressure felt in the capital.
The survey of 1,244 small business owners shows the most acute need in London, where 65% of SMEs report they will need additional finance to drive growth next year. The trend is closely mirrored in the North East (62%), Yorkshire and the Humber (58%) and Wales (54%), signalling pressure across multiple regions and sectors.
Crucially, the data suggests that the demand for finance is driven not by distress, but by ambition. Among businesses forecasting rapid expansion, 71% say they will need fresh capital, compared with just 49% of firms experiencing contraction. However, this surge in appetite for investment comes at a time when overall business confidence is weakening. Only 25% of SMEs expect growth in the final quarter of 2025 — the lowest level recorded in five years.
Compounding the pressure is widespread anxiety over the forthcoming Budget. According to the findings, 86% of small businesses fear that possible tax rises could undermine their 2026 strategies. Increases to National Insurance (59%), VAT (50%), income tax (50%), fuel duty (37%) and taxes on diesel or petrol vehicles (37%) were all cited as measures that would negatively affect their plans.
The research also reveals the direct consequences if SMEs fail to secure the finance they need. A third of small businesses say they would be forced to cancel 2026 hiring plans, while 28% would halt new product launches. A quarter would abandon IT upgrades, and 24% would defer investment in new machinery and production lines. One in five firms warn they may be unable to pay suppliers on time without fresh capital, indicating a potential ripple effect across supply chains.
Jo Morris, Head of Insight at Novuna Business Finance, said the findings highlight a growing disconnect between the national push for economic growth and the practical realities facing small enterprises.
“There is so much talk about economic growth, but at times, there seems to be a lack of understanding on what is needed to create it,” she said. “Our decade-long Business Barometer study shows clearly that the growth forecasts of UK small businesses have fallen to a five-year low for the final months of 2025.”
Morris warned that proposed tax increases could hit SMEs at precisely the moment they need stability and investment support: “The vast majority are extremely concerned about any Autumn Budget tax hikes that few enterprises feel they can absorb – and at the very time when they are looking for funding to support growth plans; whether this be investing in new equipment, hiring people, or modernising IT capabilities.”
She added that Novuna is working to ensure businesses can access the capital they need: “At Novuna Business Finance, we are working hard to support the small business community at a critical time – offering businesses in need of capital the ability to finance assets, an alternative that could potentially benefit their overall cash flow and ease pressure on other areas of their budget. Doing this with a flexible approach means that small businesses have the opportunity to better plan their growth. Now is a time to focus on supporting small businesses and to avoid adding any burdens that will damage their growth ambitions for 2026.”
The research, conducted by YouGov, underscores the mounting financial strain on small firms as they enter the key Christmas trading period — historically a vital cushion for cash flow before the new year. With economic uncertainty, tighter margins and fears of rising taxation, SMEs appear increasingly reliant on access to finance to avoid delaying strategic investment, holding back innovation, and reducing headcount.
