Small and mid-cap quoted companies are feeling more positive about the future but are finding it harder to access funding, according to research by BDO and the Quoted Companies Alliance (QCA).

The latest quarterly QCA/BDO Small & Mid-Cap Sentiment Index indicates companies' optimism about their own prospects has increased substantially, rising to 64.0 from 60.6 the previous quarter, while their confidence in the UK economy is at its highest level since the survey began 18 months ago.

In addition, half (56%) of small and mid-cap companies expect an increase in the number of their full-time employees over the next 12 months - the highest level seen on the index. Turnover expectations have also improved, with the mean expected turnover growth now at 11.2%, up from 7.9% last quarter.

However, the survey also shows that both companies and advisors are reporting that all the main sources of funding are becoming more difficult to access. Ease of raising finance through private equity fell the most from the previous quarter, rated by respondents at 4.2 out of 10, down from 5.0 last quarter.

Small and mid-cap businesses are neglecting alternative sources of funding such as corporate bonds, according to the research. More than one fifth (22%) of respondents did not know what the main benefit of issuing corporate bonds was, and nearly two thirds (62%) expressed no interest in this option.

Scott Knight, BDO partner, said: 'The critical issue at present is the availability of capital. Companies have auspicious prospects but need capital to convert these into growth. A liquid capital market is a prerequisite for the small and mid-cap sector to remain as the crucial engine for UK growth.'