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Only a third of small business leaders have a basic understanding of AI

Press release 17 July 2025

A gap is also opening between mid-sized business and smaller businesses

  • 60% of medium-sized enterprises use AI tools but this drops to 36% using the technology in micro businesses
  • Medium sized businesses more than twice as likely to be paying for access to AI tools, as only 23% of micro businesses pay for AI
  • IT security, financing and low internet speeds are the top three barriers to AI adoption
  • Varun Bhanot, founder of Magic AI, an at-home fitness system powered by AI, uses the technology for his product, but also the day-to-day running of his company

New research by Start Up Loans, conducted by YouGov, reveals less than half (46%) of small businesses use AI at work. Furthermore, over a third (34%) of small business leaders only have a ‘basic understanding’ of AI tools.  

On average, only 12% would refer to themselves as an ‘expert’ in the technology, when thinking about their proficiency in five core pillars of AI: Generative AI, chatbots and virtual assistants, speech to text and vice versa, text analysis and summary, and AI-powered text editing.

The biggest barriers to further AI adoption were found to be IT security issues (25%) and a lack of appropriate financing possibilities (25%). Slow internet connection (22%) was the third largest barrier.

There is also a knowledge barrier preventing many small businesses from reaping the full benefits of tech and AI in the workplace. Over a fifth (21%) of business leaders cite insufficient digital skills of employees as being problematic, while a similar percentage (19%) cite an internal resistance to change as a hindrance. These barriers and lack of understanding are leading to a delay in uptake of the technology.

Within smaller businesses there was a clear divide between those at the larger end of the spectrum and those at the micro end when it comes to using AI. The survey found AI is used in 36% of micro businesses (0-9 employees) and 44% of small businesses (10-49 employees) but rises to 60% of medium-sized enterprises (50-249 employees). Medium-sized businesses are also more than twice as likely to pay for access to AI (62%) compared to micro businesses (23%).

How one small business owner is using AI to revolutionise home fitness

One business owner who is using AI to his advantage is Varun Bhanot, the 34-year-old founder of Magic AI.

Varun’s product, which he launched with the help of a £25,000 Start Up Loan secured via Start Up Loans’ Business Support Partner, Virgin StartUp, is a home fitness instructor in the form of a mirror on the wall that can deliver personalised workouts and even correct your form.

While the AI used in the functioning of the product itself is incredibly sophisticated, Varun uses more entry level platforms to help manage the day-to-day running of the business.

Varun commented: 

Our website uses an AI chatbot to help manage customer queries. We are able to respond to customers in a timely fashion, while having a greater degree of knowledge and control over how we reply. It saves Magic AI time and resource, allowing us to focus our time on product and business development, which is invaluable at start-up level. I would recommend any business founder operates a trial phase with AI platforms to make sure they are comfortable with how they operate before deploying them externally. There are so many ways in which the technology can benefit your business, so if you feel like you’re pressed for time, investigate what AI can do for you.

Louise McCoy, Managing Director, Start Up Loans Products, British Business Bank said: 

AI has the potential to transform the way smaller businesses operate, but people running those businesses face a plethora of barriers which need to be overcome if they are to benefit from the technology. We hope our information, as well as start- up financing, one of the biggest hurdles identified, can help drive more use of AI. By adopting AI responsibly, smaller businesses could unlock new opportunities for growth and innovation, ensuring they remain the driving force of the UK economy.

Start Up Loans offers pre and post-loan support packages, including access to Learn with Start Up Loans, a partnership with the Open University, with courses covering key aspects of running a business. 

The Start Up Loans programme was established in 2012 to help people - wherever they are in the UK and whatever their background - to achieve their ambitions of starting their own business. It provides fixed-interest loans of between £500 and £25,000 to aspiring business owners, many of whom might otherwise struggle to secure finance.

For free advice on how to use AI to grow a business, please visit: Free AI tools to help grow your business.
 

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