As 2025 continues, UK SMEs are facing yet more volatility.

Rising costs, higher interest rates and fragile demand continue to strain cash flows. Insolvency statistics underline the pressure and the impact for business: thousands of companies each quarter are failing, with recent figures the highest in more than a decade. For many businesses, securing funding is no longer about growth, it is about survival.

While this sounds bleak, there are options and solutions that many SMEs are not aware of, that can offer lifelines and stepping stones to restore businesses to good financial health. Survival and turnaround funding provide options that allow viable businesses to bridge short-term gaps, restructure debt or bring in new capital to recover from setbacks.

Here, we set out the key options, explore the market backdrop and signpost how business owners can benefit from expert advice when navigating critical financial moments.

Market Context

The financial backdrop for SMEs remains challenging. Input prices are still elevated, particularly in manufacturing, where costs stand around 25 to 30 per cent higher than they were before the pandemic. Cash flow has shown little sign of recovery, with surveys indicating only marginal gains since 2021, leaving many firms without the buffer they need to absorb shocks. Insolvency rates remain worryingly high, with over 23,800 companies collapsing in 2024 alone.

With 2025 figures following a similar pattern, it suggests the stress has not abated. SMEs across every sector are also feeling the impact of the recent increase in employers’ National Insurance contributions, which has increased salary costs for all businesses. At the same time, lenders continue to act cautiously, tightening terms even for borrowers with fundamentally sound operations.

Turnaround Funding Options

When a business faces a crisis, different forms of survival and turnaround funding can provide a bridge. Emergency loans, revolving credit facilities, cashflow loans, merchant cash advance and overdrafts are often the first response. They provide immediate liquidity to cover shortfalls caused by late payments or unexpected bills. While such solutions are often expensive, they can offer essential breathing space, as can invoice finance. Data from UK Finance shows that SMEs still have headroom in overdraft capacity, which in some cases is helping firms to manage short-term pressures.

Government-backed schemes also play a critical role. The Recovery Loan Scheme, launched in the wake of the pandemic, evolved into the Growth Guarantee Scheme in July 2024 and has been extended until 2026. By guaranteeing 70 per cent of lending, the scheme gives lenders confidence to support businesses that might otherwise be deemed too risky. Billions of pounds have already been deployed through this mechanism, enabling companies to refinance debts and stabilise their operations.

For businesses with deeper structural problems, more comprehensive solutions are needed. Restructuring loans, Company Voluntary Arrangements and pre-pack administrations are among the tools that can help reset obligations. Alongside these, specialist turnaround funds and private equity investors are increasingly active in the UK market. These investors provide new capital and often bring management expertise to businesses with sound fundamentals but short-term difficulties. Their interventions range from high-profile rescues, such as Aston Martin, to mid-sized manufacturers facing liquidity crises.

Case Studies in Survival

While individual companies may feel that turnaround funding is out of reach, examples from recent years demonstrate that this may not be the case and show the impact that survival funding can have. A Midlands manufacturer, struggling after the pandemic, secured a £500,000 loan under the Recovery Loan Scheme. This injection of working capital enabled it to restart production, fulfil orders and return to profitability within a year. At a larger scale, Eurostar’s £250 million rescue package in 2021 blended shareholder equity with restructured debt. The deal stabilised the company during one of the most difficult trading periods in its history, demonstrating how large-scale interventions can avert collapse.

The Role of Financial Resilience

The last five years have shown SMEs the importance of planning for shocks. Businesses with contingency funding, diversified revenue streams and stronger balance sheets are far better placed to secure finance on reasonable terms. Building financial resilience is not just about surviving the next crisis, it is about positioning the business to thrive in the long term.

“In our experience, the most successful turnarounds come from early engagement. Too many SMEs delay action until the crisis is critical. At Pegasus Funding Solutions, we help business leaders map the right funding route before it is too late.”

– Richard Olsen, Pegasus Funding Solutions

Conclusion

Survival and turnaround finance is not a one-size-fits-all product. It is a spectrum of solutions, each suited to different challenges. For SMEs under pressure, early advice and the right funding match can be the difference between failure and recovery.

Get Expert Support

If your business is experiencing financial stress, Pegasus Funding Solutions can help you identify and secure the right turnaround funding and survival funding lifeline. Contact us today for a confidential discussion.

Call: 0203 327 0567

Email: [email protected]