The latest research into the health of the UK's small business sector has identified three key challenges that SMEs currently face.
The CYBG quarterly SME Health Check Index, conducted in partnership with the Centre for Business and Economics Research (Cebr) has recorded the worst small business health reading since the first quarter of 2014. The Index dropped to a score of 42, down 48% since 2014 and the fifth consecutive quarterly fall.
CYBG describes the challenges as a "triple whammy"; it says rising business costs, a dip in confidence affecting investment and a UK skills shortage are "taking their toll" amid a "worsening business and macroeconomic environment".
Rising costs have hindered growth for 19% of SMEs - over one million small firms. Of those, 42% said it has resulted in lower levels of investment in the business; 35% have been unable to build up cash reserves; and 28% said it has prevented the hiring of new staff.
A significant dip in SME confidence has also impacted on investment. The figures show that SMEs are borrowing less, with lending down 3.7% to £92.5 billion in the year to the end of Q3 2017, the largest drop since the Index began in 2014. That said, CYBG reports that UK Finance data published at the end of February shows that lending to SMEs stabilised in the fourth quarter of 2017.
The UK's skills shortage has caused an estimated £7.3bn annual loss in sales for SMEs, according to CYBG's research with YouGov. This equates to about 252,000 new jobs on an average UK salary and is worth around £97 million in corporation tax revenues. More than half (55%) of the UK's SMEs believe the skills shortage is impacting on their bottom line.
David Duffy, ceo of CYBG, said: "SME confidence appears to be in short supply as many small firms are seeing rising business costs alongside continuing skills shortages. Businesses are scaling back their investment and borrowing due to the wider economic uncertainty, contributing to the decline in the Index.
"In the current environment, SMEs would welcome more incentives to address skills shortages or further tax reductions to manage costs and restore confidence."
Around 20% of SMEs surveyed in the YouGov poll said that that either a cut in VAT or further Corporation Tax relief would deliver the biggest benefit; 40% of SMEs said that an incentive for employers to invest in existing employee training could help bridge current skills gaps; an equal amount suggested corporate tax incentives for training.
The findings of the report are analysed in more detail in a video produced by CYBG.