SME anxieties subside despite traditional banks 'scaling back' SME lending

SME anxieties regarding a potential recession have eased by a third (32%) since Q4 2022, though inflation concerns remain, reveals iwoca’s Q4 2023 SME Expert Index.

Under half (49%) of SME finance brokers surveyed report their SME clients having any recession fears –– a significant drop compared to 73% in Q4 2022.

Nonetheless, economic fears persist — inflation remains disquieting to SMEs going into 2024, with nearly half (45%) of brokers suggesting it is SMEs’ main concern, compared to just a third (32%) of brokers in Q4 2022. 

Despite growing demand for high-value finance, SME financing options at traditional banks are being scaled back, with three-quarters (77%) of brokers noting that high street lenders are reducing their appetite for funding SMEs. 

In response to the tightening lending environment, almost three-quarters (71%) of brokers now submit most of their SME clients’ loan applications to alternative lenders.

As concerns around a recession fall, over a quarter (26%) of SME finance experts say that small businesses are mostly seeking higher-value loans of over £100,000 — up from 15% the previous quarter — suggesting the UK’s enterprises may be tending to growth ambitions.

Demand for smaller loans is waning in line with SMEs’ focus on larger loans, suggesting growing demand for longer-term funding, as opposed to smaller loans to ease short-term cash flow concerns.

In Q4, just two-fifths (40%) of brokers said loans of up to £50,000 were SMEs’ most popular choice, an 8pp drop since Q3.

Colin Goldstein, commercial growth director at iwoca, commented: “SMEs appear to agree with the Bank of England's cautious stance on inflation, yet despite worries about a potential eurozone recession, UK small business owners continue to hold an optimistic outlook.

“The SME lending market is strengthening, with rising applications for larger loans and falling inflation hinting at a brighter future. 

“However, a number of challenges remain, especially with high street banks showing limited enthusiasm for lending.

“Stability and support are now essential if we’re to see SMEs turn their optimism into growth.” 

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