UK SMEs Are Using Cash Reserves and Loans to Weather Economic Uncertainty

For many SMEs, success is no longer just about having cash in the bank; it's about knowing when and how to use available funding to accelerate growth. Aurum Solutions, a leading provider of financial automation software, has conducted an analysis to reveal how businesses across the UK are managing their cash reserves alongside strategic financing, helping them preserve working capital, invest with confidence, and remain agile in a changing economic landscape.

SME Pressures in 2026

While the economy saw slightly better-than-expected results at the start of 2026, with growth of 0.6%, there were a considerable number of obstacles businesses faced this year, from tax rises to political tensions. According to research from SME Finance Monitor, fewer SMEs (27%) in 2025 reported growth versus the previous year, with only 41% planning to grow this year, the lowest level seen since 2022.

In 2025, more SMEs saw threats (33%) to their business than opportunities in the future (28%). While they may have been more optimistic in the past, now caution and concern are on the rise. A quarter of SMEs described themselves as struggling both financially and operationally. The three biggest challenges reported were rising costs (36%) for materials, rising labour costs, and energy. Secondly, the general outlook of the economy (36%) is one of uncertainty about inflation or a recession, which puts many business owners off investing in growth. Thirdly, political uncertainty (35%) created new pressures for many businesses in 2025 due to changes in employment laws, business taxes, and regulations.

Cash flow pressures remain a reality for SMEs

For many small businesses, managing cash flow remains one of the most significant ongoing challenges. From covering upfront costs and changing taxes to navigating delayed payments, maintaining large cash buffers is often difficult, particularly in sectors with tight margins. According to a 2024 report, an estimated 110,000 UK SMEs are at risk of insolvency because they lack cash reserves, with 1 in 5 businesses lacking an emergency buffer.

SMEs play a vital role in the UK economy and need to have access to essential funding and finance required to support jobs, growth and day-to-day expenses. A survey by the British Business Bank revealed that half of businesses (50%) seeking finance are seeking it to support working capital. The SME Finance Monitor survey showed an increase in the use of credit cards and overdrafts in 2025, which coincides with a slight (four percentage point) increase in businesses reporting cash flow as a major concern for their business.

A separate report from SME Finance Monitor, an analysis of regional business data, found that, in 2024, 29% of SMEs typically held credit balances exceeding £10,000. SMEs in Northern Ireland were the most likely to maintain balances at this level, with 47% reporting holdings above £10,000, although this was down from 51% in 2023. Yorkshire & Humberside also recorded a relatively high proportion at 37%, a modest decline from 39% the previous year. By comparison, only 22% of SMEs in Wales held balances above £10,000, while figures across other regions ranged from 25% to 33%.

SMEs were cautious but stable with borrowing and deposits in 2025

The British Business Bank revealed that the proportion of smaller businesses using external finance in 2025 was around 50%, the highest level recorded since Q3 2023. After falling from 45% in Q1 to 42% in Q2, demand rebounded as businesses looked for additional support to manage working capital and day-to-day operating costs. This remained the main reason for borrowing cited by businesses.

Rising cash flow pressures and an increase in late payment issues, reported by 22% of smaller businesses by Q3 2025, likely contributed to greater reliance on short-term financing solutions such as credit cards, overdrafts, and bank loans. The uptake in bank loans also grew across the year, coinciding with a gradual decline in interest rates that made borrowing more attractive. Although SMEs became slightly more cautious, with risk appetite falling three percentage points compared with late 2024, confidence remained relatively high, with many businesses continuing to pursue growth opportunities, with long-term ambitions remaining above the levels seen in 2022 and 2023 despite being lower than in 2024.

Key sectors balancing growth and financial resilience

In 2025, UK SMEs showed a balance between growth ambitions and financial stability. According to the 2024 Dojo SME finance report, most businesses maintained emergency cash buffers, with an average six-month cash runway, ensuring they could be prepared for any unexpected costs or economic uncertainty. Nearly 80% of SMEs held this buffer, while borrowing, whether through formal loans or informal sources, to support cash flow, fund new opportunities, or invest in expansion, rather than as a last resort.

Funding Circle reported £3.0 billion in active SME loans in 2025, a 5% increase from £2.8 billion in 2024. Most of this lending (93%) came in the form of Term Loans, showing that SMEs favour structured financing to plan for growth and manage cash flow reliably. Lending spanned across multiple sectors, including retail & wholesale (22%), construction (17%), and professional services (11%), highlighting that businesses across the economy are accessing finance to remain resilient, invest in opportunities, and prepare for a range of future scenarios.

Taken together, these insights show a strategic approach to funding across UK SMEs: businesses are leveraging finance to grow and innovate while simultaneously maintaining cash reserves to safeguard against uncertainty. This approach positions them to respond flexibly to challenges while capitalising on opportunities, illustrating a sector-wide commitment to resilience and planning.

According to the growth and innovation behaviours of SMEs in 2025, around 27% of SMEs grew in 2025, but a promising 41% are planning to grow.

• Manufacturing reports high growth and innovation (51% plan on growing, 39% are consistent innovators, 37% are ambitious innovators). Driven by tech upgrades, automation, and export opportunities, it's understandable that this sector is seeing growth opportunities. These businesses are likely comfortable borrowing for investment because the returns from investing in new machinery or processes are often more tangible and measurable.
• Construction, Transport, and Health are the least likely to have scaled in 2025. These sectors tend to prioritise maintaining stable cash reserves rather than borrowing to fuel rapid growth. When they do take on funding, it is often targeted at innovation, such as adopting new technologies or improving processes, rather than large-scale expansion. These businesses can manage risk effectively by maintaining a cash buffer, especially in highly regulated or cyclical environments.

How Businesses Can Use Software For Greater Cash Flow Visibility

While low cash reserves can leave businesses more vulnerable to unexpected costs and economic uncertainty, they also highlight the importance of greater financial visibility and control. By leveraging solutions such as automated reconciliation software, real-time cash flow monitoring, and streamlined financial management tools, SMEs can make more informed decisions and improve operational efficiency. Combined with access to appropriate funding solutions, these technologies help businesses to:

• Gain clearer oversight of cash flow and working capital
• Reduce manual processes and improve financial accuracy
• Navigate short-term challenges with greater confidence
• Invest in growth opportunities at the right time
• Build stronger long-term financial resilience

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