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It might come as a surprise that most of the UK’s income and employment is provided not by the big national or multinational companies we all recognise but by what are known as small and medium-sized enterprises (SMEs).

These organisations are businesses with fewer than 250 employees and less than £36 million in revenue. And for a business to specifically be considered “small”, it will often have 50 employees or fewer. These small businesses have been called the of the UK private sector, driving growth and employing .

As such, they’re vital to the economy. So it is crucial that they are supported to survive and grow with easy access to finance – and this is even more important when there is economic uncertainty. These businesses are often closely aligned with their founders – and the boundaries between the enterprise and its people are usually more blurred than in larger firms.

Since the 2008/2009 financial crisis, the UK economy has been continuously, creating uncertainty within the UK. Brexit and the COVID pandemic have also exacerbated the uncertainty many people and businesses feel. And the hasn’t made things any easier for businesses, as many wonder how to deal with the coming tax changes.

My captures how Brexit uncertainty affected small businesses and sparked financial concerns. Being financially constrained is not good for small businesses for several reasons. When they don’t have enough money, they don’t invest in staff or equipment, or they hold off on other investment plans. And with increased costs brought by rises in the national minimum wage and employers’ national insurance contributions announced in the budget, businesses may hold off pay rises or even recruitment.

In other words, finance is the backbone of business operations. So it is important that small businesses get the finance they need so they can play their part in boosting economic growth.

The good news is there are various routes to finance. The spends billions of pounds supporting small businesses, and the , set up to support UK businesses, promotes various suitable for small enterprises. On top of that, some of the big UK banks like and also have products for small businesses.

As such, there appears to be a lot of funding available. However, my research found that many small businesses still don’t receive the finance they need. So what’s going wrong?

Previous have found that small business owners worry about the cost of borrowing, even from banks. The interest rates can often be high due to uncertainty over the business’s profitability – and to combat this banks can also ask for collateral such as a home and valuable possessions. This clearly can be emotionally challenging for small business owners.

And other experts that human decision-making is often not rational but emotional. It is these emotions I saw play out in my research.

I observed that small business owners are often driven by personal attitudes towards finance rather than needs or circumstances.

For instance, during the Brexit referendum, business owners’ personal stances on the issue interfered with some business decisions. This is partly because, for many small businesses, the owner is not completely separate from the business. Although they may be separate legal entities, the owner’s beliefs and attitudes tend to influence business decisions. One participant in my research, for example, said they were unsure how new Brexit restrictions would affect their business and so chose not to apply for a loan.

This interesting finding was also reflected in their finance mix (that is, the different sources of finance they seek). It’s not surprising then, that where a small business owner feels borrowing is not a good thing, they will be more hesitant to apply for a bank loan. They might, for example, try to secure government grants, which are far harder to come by, or simply go without the money that could help them expand.

The reasons for reluctance

This reluctance to borrow is often linked to a phenomenon known as . This refers to situations where a business owner who could benefit from borrowing refuses to borrow or even make a loan application for fear of rejection. It is common when the business owner has a bad credit history but it also affects those with good credit ratings.

Previous have highlighted discouragement as a hindrance to the growth of small businesses, yet it continues to present itself in today’s small business owners.

My doctoral study showed that imposter syndrome (where an owner might feel ill-equipped to apply for a loan, perhaps because of a lack of sufficient financial records) contributes to feelings of discouragement with regard to loan applications. Other factors that can feed in include perceived discrimination (when someone feels discriminated against, even when there may be no discrimination), levels of trust and familiarity, and limited financial literacy. The challenge for small business owners is that these psychological barriers can be difficult to pinpoint and address.

Interestingly, 70% of the small business owners that I interviewed for my research expressed some level of discouragement. This reinforces how influential a person’s psychology is in their business decision-making.

So what’s the solution? One recommendation is for business owners to forge a better relationship with their bank. This will move their relationship away from one that is purely transactional. As banking expert Yongsheng Guo , banks can see establishing a relationship as a way to improve their value to the customer. Bank managers should engage more with their small business clients to build trust and familiarity. Government can also implement targeted policies for small business to ensure that funds get to them.

This could lead to more bank loan applications and so more funding to small businesses. With more targeted support to educate and signpost small businesses to the financial support that is available to them, these vital businesses can play their full role in supporting the UK’s economic growth.