A lack of confidence, reluctance to take on debt and employment law are three of the major barriers to small firms looking to expand, a new report suggests.

The study, Growing pains: What is holding SMEs back? has been produced by the British Chambers of Commerce (BCC) and highlights the challenges facing small and medium firms.

It found that while mangers have the driver to set up a firm, few have the confidence to employ staff in areas such as sales and marketing, which the BCC say will help businesses to grow.

The BCC added that for the first three years of their existence, many SMEs are reluctant to take on debt and there is a lack of knowledge about schemes will offer presentational terms of lending to small firms.

Red tape because of employment law also hinders growth, the report claims.

David Frost, director general of the British Chambers of Commerce, said: "Managing so many conflicting priorities day-to-day whilst making the right strategic decisions tests many owner-managers and was recognised by the participants in our research as a major constraint on their business."

Yesterday the Forum of Private Business called on the prime minister to take heed of the views of small firms.

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