More than a fifth of small and medium-sized businesses have been unable to access the finance they needed over the past two years, according to a new survey.

The research commissioned by Manx Financial Group revealed that 22% could not get external finance or capital and that 27% were forced to stop or pause an area of the business because of lack of finance.

The findings support the financial services group’s calls for a new government-backed loan scheme after the end of the Recovery Loan Scheme at the end of June, warning that SMEs face “their own cost-of-living crisis”.

The research showed that the biggest barriers faced by SMEs in sourcing external finance and capital were that it was too expensive (23%), the process took too long (19%) and that there was a lack of flexibility with repayment terms (17%).

Business owners also cited other barriers such as the fact that the lender did not understand their business (16%) and that they received poor customer care (10%).

SMEs have been forced to pause or stop activities such as expanding into new markets, hiring the right personnel and marketing because of lack of financing.

Over the next 12 months, 38% believe sales will be the biggest areas of business that will see growth.

The research also highlighted that 34% of SMEs were concerned that their business would not grow in the next 12 months. However, with appropriate external finance, SMEs on average believed their business could grow by around 17%.

Douglas Grant, CEO of Manx Financial Group, said: “The research sadly reveals what we have been observing for some time – that SMEs continue to struggle with accessing finance and that worryingly, this lack of availability will cost them and the UK economy in terms of growth at a time when it is needed the most.

“The amount of growth that is being sacrificed is however significant and will require new solutions which are designed to address this funding gap.”

Conister Bank, an operating subsidiary of Manx Financial Group, was an accredited lender for the government-backed Recovery Loan Scheme (RLS) to help businesses grow after the disruption of Covid-19. However, the 30 June deadline has now passed, removing one source of finance for SMEs.

Douglas continued: “We were delighted to have been accredited for the RLS last year. The programme provided the necessary catalyst that many sectors required to thrive.

“However, this lifeline is now gone and demand for working capital is set to soar to new highs as more businesses desperately require liquidity provisions to counteract record inflation levels, rising interest rates, supply chain issues, increases in wages and additional pandemic-induced headwinds.

“With the cost of borrowing set to increase, many SMEs are facing their own cost-of-living crisis.

“A sector-focused government-backed loan scheme which brings together both traditional and alternative lenders to guarantee the future of our SMEs in struggling sectors, is critical to ensure that opportunities for their growth are not missed.

“We very much hope this is something that becomes a reality.

“In the meantime, all SMEs would be well advised to take stock of their current capital structures and, if appropriate, access fixed-term, fixed-rate loans to prevent additional exposure to an increasingly volatile lending market.”