Small and medium-sized enterprises (SMEs) across the UK are facing mounting financial strain, with concerns over rising business costs hitting a record high, according to the latest insights from finance brokers. The findings, drawn from iwoca’s SME Expert Index for the fourth quarter of 2025, reveal that 58% of brokers now identify escalating operational expenses as the top worry for their SME clients.
According to insights from iwoca, this represents a sharp 10 percentage point increase from 48% in the third quarter and marks the highest reading since the survey began tracking this metric in the final quarter of 2022.
The UK is home to approximately 5.5 million SMEs, which form the backbone of the economy.
Yet these businesses are bracing for additional cost burdens as a series of government policy changes take effect in April 2026.
Brokers highlighted the planned increase in the national minimum wage as the most disruptive measure, with one-third (33%) predicting it will deliver the greatest negative impact on small firms.
Trailing closely behind were hikes to the basic and higher rates of dividend tax, cited by 26% of respondents, while reforms to business rates followed at 24%.
These pressures come at a time when many SMEs are still recovering from years of economic turbulence, including inflation spikes and supply chain disruptions.
The survey underscores how cumulative cost increases—from wages and taxes to everyday running expenses—are squeezing margins and forcing owners to reassess their strategies.
Despite the challenges, there are encouraging signals of resilience and proactive planning.
A substantial 74% of finance brokers anticipate a rise in demand for SME financing over the next six months, up from 66% in the previous quarter.
This optimism is reflected in iwoca’s SME Lending Thermometer, which climbed to 5.98 in Q4 2025 from 5.15 three months earlier.
On a scale of 1 to 10, where higher scores indicate stronger borrowing appetite, the improvement suggests businesses are increasingly turning to external funding to support investment and expansion rather than adopting a purely defensive stance.
Recession fears have also eased markedly.
Only 42% of brokers reported that their SME clients remain anxious about a potential downturn—down from 48% in Q3 and the lowest level in three quarters.
This shift points to growing confidence among small business owners as they look toward 2026.
When asked what single policy would best support SME growth this year, lower taxes emerged as the clear favourite, selected by 46% of brokers—an increase from 38% in the same period of 2024.
By comparison, halting further national minimum wage rises and bolstering local business support each garnered just 14% of the vote, illustrating the strong preference for fiscal relief over other interventions.
Giovanni Contratti, Director of the Broker Channel at iwoca, commented:
“Small businesses are clearly feeling the pressure of rising costs, and the further Government-mandated cost increases in April will add to that burden. But what’s encouraging is that SMEs aren’t sitting back. Demand for finance is growing as businesses look to invest and continue growing. We’re seeing businesses take action rather than cautiously waiting and seeing, and at iwoca, we’re backing them with the flexible finance they need to navigate these pressures.”
As April approaches, the message from the broker community is clear: while cost headwinds are intensifying, many SMEs are demonstrating adaptability by seeking finance to fuel growth.
Policymakers and lenders will be watching closely to see whether this resilience translates into sustained expansion or if further support measures become necessary to prevent a wave of financial strain across Britain’s vital small business sector.