Against of background of gently falling interest rates and a need to improve national productivity, key stakeholder groups are urging UK Small and Medium Enterprises (SMEs) to get over their aversion to bank debt and explore new funding options.
The government is wrapping up an eight-week probe into backing smaller businesses, including start-ups, which contribute a quarter of UK GDP and around 60% of employment. Earlier in spring, UK Finance, the trade association for banking and other funding, revealed a £7 billion drop in net lending to SMEs. Others recognise an underlying shift in bank lending across the UK economy that his increasingly biased towards residential mortgage lending. Meanwhile, the UK has the lowest investment rate in the G7.
Challenger business bank Allica has identified a £90bn gap in bank lending to SMEs. Despite growth of around £25bn in non-bank lending to SMEs since the 2008 financial crisis, there is still a total SME lending gap of up to £65bn against long-term trends. Particularly concerning is the collapse in SME overdraft lending, which now makes up only 5% of SME bank lending compared to 25 per cent in 2000. Worse still is the picture for SMEs with less than £1m turnover: these firms have seen a 73% fall in overdrafts in that period. The present focus on collateralised lending is unhelpful in today’s service-led SME economy, where tangible asset ownership is low.
The Institute of Chartered Accountants in England and Wales (ICAEW), of which many Insolvency Practitioners and turnaround advisers are members, blames cost, time and red tape for the low uptake of debt finance. Its evidence to the government’s snap enquiry cites SMEs taking out personal loans to support limited investment in their business or to see them through cash flow problems.
In addition to an education campaign about how non-traditional types of debt finance can support growth, ICAEW also recommends that the focus for the government’s new Business Growth Service should be on under-represented and less well served businesses, including those founded by women and people from ethnic minorities. It has also suggested launching a business voucher scheme to help businesses pay for professional advice and identify the right finance and support for growth initiatives.
Small business leaders have complained about high street banks using restrictions to limit their exposure to the SME sector, including demands for personal guarantees when making loans., At present, the government-backed British Business Bank covers 70% of loans made by banks to small businesses that fit certain criteria. Trade association UK Finance has argued that the scheme’s funding needs to be backed with more cash before banks will increase the number of loans.
EV troubles reflect unease among tech investors
Britain’s fledgling electric vehicle industry may not be a prime target for Trump tariffs, but its frustrated funders are becoming decidedly nervous about the whole tech sector.
Volta – Swedish but based in the West Midlands – collapsed last October after its battery supplier folded. It’s pinning hopes on a new manufacturing agreement just signed with Austria’s Steyr Automotive. Lunaz, backed by David Beckham, put its commercial transport arm Lunaz Applied Technologies into administration after production setbacks. It’s focusing on passenger cars, but against huge Chinese competition. The company had been valued at more than £150m in a 2022 funding round. Arrival, the former developer of light commercial vehicles, saw its one-time market value of £4.2bn slump to just £20m. Essex’s Tevva Motors has struggled to raise further capital, while electric truck maker.
The valuation issue is key here. Arrival was one of a wave of electric vehicle companies that capitalised on huge investor demand during the last tech boom to raise money. It might be argued that a good proportion of tech investors, particularly those aged under 50, are fair-weather punters whose careers may have been built (and sometimes fortunes made) against a generally benign economic environment.
Now even their mood is changing. Advisory firm TechMarketView’s Tech Confidence Index score has fallen from 6.5 in Autumn 2024 to 6.1 in Spring 2025, reflecting a cautious outlook as UK tech leaders face economic pressures.
Some 61% of respondents rated current UK business conditions as “neutral” or “poor”, with only 45% of respondents expecting business conditions to improve over the next 12 months. Falling demand and declining sales emerged as the top concern, while confidence in government policy as a driver of success in the tech sector has also weakened further. Only 24% of business leaders now view the government’s impact on the tech industry as positive, compared to 43% six months ago. They highlight rising National Insurance Contributions as a specific brake on growth.
Nonetheless, UK tech businesses remain committed to innovation and investment in key growth areas: 84% of respondents reported plans to invest in Artificial Intelligence (AI), followed by digital transformation (51%), automation (48%), and cybersecurity (40%) – in other words, operational efficiencies.
Longer term, UK tech remains in a good place. As home to eight of the world’s top 50 universities, companies can access a healthy pool of skilled talent, and research and development programmes. There is no shortage of software engineers on these shores. Success in starting, scaling and selling UK businesses has been proven. London’s Silicon Roundabout, Canary Wharf’s Level 39 and other major cities, notably Bristol, Cambridge, Manchester and Cardiff, have produced several impressive tech and engineering start-ups, many of which have already been snapped up by large US or Asian corporates.
Now that interest rates have eased, UK growth companies need to be nimble and ready to take quick action if they want to secure their longevity, which means being prepared on a number of fronts:
- Data-ready for fundraising – financial content for Information Memoranda
- Efficient structures for founders and directors
- Support for tech grant applications
- Assisting in communications and negotiations with lenders
- Advice on R&D allowances
- Recognition of complex revenues
- Treatment of Intellectual Property and intangible assets
- Advice on structuring strategic alliances and major contracts
- Scaling strategies
- Due diligence on potential transactions
Tech entrepreneurs looking to steady their businesses while funding waters remain choppy are welcome to get in touch for an exploratory discussion.
Insolvency figures
Spring this year may have been unusually sunny so far, but the chill wind is still around and the sky is darkening for many businesses.
Company insolvency figures for April now appear to reflect more fully the economic fragility facing the UK and the many cost pressures felt by enterprises of all sizes at the moment. Corporate insolvencies increased by 3% in April 2025 to a total of 2,053 compared to March’s total of 1,996. Company insolvencies over the past 12 months have been slightly lower than in 2023, which saw a 30-year high annual number, but have remained high relative to historical levels. Around three-quarters of April’s total is represented by Creditors’ Voluntary Liquidations – businesses owners throwing in the towel while it’s still their decision.
Personal insolvencies exceeding 10,000 were 8% higher than in March and 4% up on the same month last year. Only 589 were bankruptcies; the vast majority of the figure was split between Debt Relief Orders (DROs) and Individual Voluntary Arrangements (IVAs).
Most alarming, however, is the jump in compulsory liquidations in April 2025, 24% up on March and the highest monthly number since September 2014. The figure is chiefly a result of a hike in winding-petitions brought by HMRC and it suggests that, for many businesses with tax debts, the authority’s patience is wearing thin. Forbearance during peak-Covid and beyond was generous and HMRC is generally reluctant to force companies into liquidation, wasting time and public resources, until it has exhausted all other routes to collect.
Higher energy costs, employees’ pay demands and increases in employers’ National Insurance contributions continue to paint managers into a corner. Poor cashflow is the biggest killer of businesses, particularly SMEs. Robbing Peter to pay Paul is too often a miserable combination of late settlement with suppliers and non-payment of corporation tax and/or VAT.
Sensible managers won’t bury their heads in the sand and will take action sooner rather than later to keep their businesses afloat and stay on the right side of HMRC:
- Get on the front foot with tax. Engage and explore a time to pay arrangement. Being unresponsive only aggravates HMRC and hastens a winding up petition
- Look at extending credit terms. Revisit repayment profiles for loans and propose realistic, achievable amendments. A loan that remains serviced, albeit differently, is still profitable for a lender.
- Consider the moratorium framework to gain a short period of “breathing space” while pursuing a rescue or restructuring plan. During this legal moratorium no creditor action can be taken against a company without the Court’s permission.
On the flip side, suppliers to troubled companies must have the confidence to chase payment and enforce their terms, regardless of the perceived risk of upsetting a customer: if a business agreement is too fragile to able to discuss money indisputably owed, then it will invariably lead to a bad debt, at least in part.
All businesses facing severe cashflow pressures should seek professional advice on credit management, invoice discounting, overdraft planning, communicating with HMRC and contractual terms to minimise the impact of late payments.
Buchler Phillips Hospitality Index
The number of hospitality businesses entering insolvency returned to an upward trend in the first quarter of the year, reflecting challenging trading conditions for the industry.
Some 826 accommodation and food service companies, including hotels, restaurants and pubs, closed in the three months to March 2025 up 3% on Q4 2024. March showed a 4% rise on February, according to government data. Offering little cheer, the number of monthly hospitality insolvencies has remained consistently over 270 so far this year, after posting 224 for December.
The Buchler Phillips Hospitality Index of insolvencies, which has tracked monthly figures since January 2014, rose from 175.3 in December to 181.2 in March. It peaked in August 2023 at 273.4 with a spike in the sector’s business closures.
High profile operators closing high street units have included Itsu, while kitchens were finally shut at famous London independents Locanda Locatelli, La Goccia and Lyle’s. In the pub sub-sector, 303 UK units closed in Q1, with another 46 converted to other uses. Hotel casualties included Bridlington’s landmark Expanse Hotel, ending 90 years of trading.
Hospitality is staying near the top of the insolvency table for the time being. The sector is finding it hard to adapt to a higher cost base and there’s no easy route to recovery, even when an upturn in consumer spending finally arrives.
Pubs, hotels and restaurants are bearing an estimated £3.4bn of additional costs, not least because of the increase in employers’ National Insurance contributions. Operators are being forced to lift prices by 6% to 8% on average, against a background of already depressed trading. This year, more than three-quarters of a million hospitality employees will have been shunted into employers’ NIC for the first time.
The Buchler Phillips Hospitality Index (BPHI) is compiled from monthly company insolvency statistics made available by the UK Government’s Insolvency Service. Using a base of January 2014 = 100.0, the index tracks the sector classification of Accommodation and Food Service Activities.
As ever, the Buchler Phillips approach to business challenges is ‘workout, not bail out’. Don’t hesitate to get in touch for an exploratory chat if your business needs help. Addressing the cracks now will, in many cases, avoid the need to start again.
Our helplines below are open for free initial consultations.
Jo Milner 07990 816904
David Buchler 07836 777748
Let’s get to work!
About Buchler Phillips
Buchler Phillips is an independent, UK based corporate recovery and restructuring firm, with an impeccable Mayfair heritage dating back to the 1930s.
Led by David Buchler, former Europe and Africa chairman of global consultancy Kroll Inc, our senior team is equally comfortable advising large corporations, Small & Medium Enterprises (SMEs) or individuals. In addition to decades of experience, each of our Partners brings to any given assignment unique independent insight, free from conflicts of interest, that is often sought but rarely found by clients or co-advisors.
The firm is sector-agnostic, but has particularly strong credentials in property; financial services; professional services; leisure and hospitality; retail and consumer; UK sports; media and entertainment; transport and logistics; manufacturing and engineering; technology and telecoms
Our activities fall broadly, though by no means exclusively, into financial restructuring, including fraud and forensic investigations; operational restructuring and turnaround; expert witness services and recovery solutions for corporates and individuals.
This newsletter is published for the purposes of general information only and does not constitute advice. Any action taken by readers upon the information above is entirely at their own risk.