Six in ten small businesses believe AI will be vital to their growth and survival in the next five years but a lack of understanding and cost barriers are holding many firms back, according to a new report.
Research conducted by Small Business Britain and BT has found that 60% of small firms predict AI will be essential to their growth and survival in the next five years. The AI Opportunity for Small Businesses report, which surveyed 2,000 business owners, has found that 62% of SMEs are now using AI.
With the help of AI, small businesses are automating time-consuming tasks, improving customer service and streamlining operations, freeing up valuable time to focus on innovation and growth. The most common applications include marketing (47%), operations (17%) and customer service (8%).
Barriers to entry for AI adoption
However, the findings also reveal that the UK's 5.45m small businesses are at "vastly different stages" of adoption and there are significant barriers to entry for AI, which disproportionately affect smaller firms. Over two-thirds (68%) want more affordable AI solutions, with half of entrepreneurs admitting they lack understanding of the new technology (60%) and want more practical support (51%).
The report makes 13 recommendations for government, technology providers, educators and business networks to bridge this gap and prevent smaller firms from falling behind. These include more cost-effective AI solutions, as well as incentives to encourage early adoption, such as funding, grants and tax-breaks.
"AI is transforming industries across the UK and is now a critical conversation for small businesses. While there is excitement, there is also a clear need for expert guidance and support, as entrepreneurs are at vastly different stages of understanding and adoption. While some have fully integrated AI into their operations, others are still grappling with what AI is and how it can help. We cannot risk any small businesses being left behind." Michelle Ovens, founder, Small Business Britain.
The report also argues that AI has the potential to level the playing field for all entrepreneurs, provided accessibility and inclusivity are built into the design of tools and support. Under-represented founders, particularly disabled entrepreneurs, show high engagement with AI, with 64% already utilising it, but only 14% reporting a strong understanding of its benefits.
Amelia Peckham, co-founder of Cool Crutches, said, "Incorporating AI in the right way to have maximum impact is key. Every founder should be using it - we have implemented it into our marketing, and it has transformed the speed at which we can work, as well as efficiency for me as a founder, and the team. With a much bigger output without adding cost, it's a no-brainer - the key is knowing how to use it the right way."
Is AI a threat to small firms?
However, new research by Uswitch suggests that many small business owners see AI as a threat rather than an opportunity. The findings of its recent survey reveal that a quarter of SME owners have never used AI; of those, 53% say they have no plans to adopt the technology. In fact, nearly half say they distrust AI in areas like finance (50%), hiring (49%) and legal decisions (47%). What's more, 29% believe AI presents a potential threat to their business. Of these, the data shows that:
- 52% believe AI could replace their jobs;
- 37% say it introduces data and compliance risks;
- 30% say their customers might not like AI-driven services;
- 14% admit to not understanding it enough to use it safely.
Andy Elder, Uswitch credit cards business expert, said: "AI can be a powerful tool for small businesses - but only when it's used with purpose. The hesitation we're seeing isn't a rejection of innovation; it's a call for clarity, trust, and real-world relevance. You don't need to automate everything overnight. Focus on where AI can genuinely lighten the load, whether that's streamlining admin, improving decision-making, or enhancing how you connect with customers. The smartest approach is to start small, measure impact and build confidence from there."
Written by Rachel Miller.
