Recent changes to the Bank of England (BoE) interest rate mean new credit is unaffordable for more than four in 10 small firms, research has revealed.
The Federation of Small Businesses (FSB), which published the study, says it is “critical” that further rate rises are “carefully considered”.
Its research found that 42 per cent of small firms now describe new credit as unaffordable in Q3 2018, while just a quarter of firms say the opposite.
Likewise, less than one in three small firms are being offered interest rates of under four per cent, compared to four in 10 small firms a year previously.
The trend for high interest rate loans, however, has increased significantly. The research shows that 35 per cent of small firms have been offered a loan with an interest rate of seven per cent or more, compared to just 24 per cent during the same period a year ago.
The FSB suggests increasingly unaffordable bank loans have forced SMEs to shift to sourcing finance from alternative sources, such as asset-based finance, crowdfunding and peer-to-peer platforms.
FSB National Chairman Mike Cherry, said: “We need to see a fundamental shift in the UK’s small business finance culture. Too many firms are reluctant to borrow and realise their full growth potential. Those that do are too reliant on traditional debt products.
“We could learn a thing or two from the US where equity finance is booming. UK firms need to be encouraged to recognise that this kind of investment can bring not only growth finance, but also advice and support from those with real expertise.”