There are signs of a return of confidence to the 5.5 million small and medium-sized businesses in the UK and the lending market they depend on according to iwoca.
The new research, conducted with more than a hundred SME finance brokers who collectively submitted more than 2,500 SME financing applications in March, reveals that fears about a recession are at their lowest level in a year. While three in five brokers reported concerns from SMEs about a future recession, this is down from a high point of nearly four in five in the second quarter of 2022.
Concerns about a recession also fell from being the second-largest overall concern for SMEs, to fourth since the fourth quarter of 2022, with half as many brokers choosing it as the biggest concern compared to the last quarter (6%, down from 12%). Reflecting this cautious optimism, the data found that the most common reason for SME loan requests according to more than half (52%) of brokers is growth.
This comes as data shows that nearly half of brokers (45%) have seen an increase in the number of loans they apply for on behalf of their SME clients. By contrast, just over one in ten (14%) brokers reported a decrease in loan applications.
There remains a significant headwind for UK SMEs
While the first set of data from brokers in 2023 shows signs of confidence, challenges remain for small and medium-sized businesses operating across the UK.
Three-quarters (75%) of brokers said the SMEs they work with are concerned about the survival of their business in the face of the rising costs of energy prices.
More than half (52%) of brokers surveyed reported either increasing costs of running the business or inflation as the top current concern for SMEs, up significantly from only a third (34%) who reported the same in Q422. By comparison, the Inflation did not appear in the top five concerns in Q422, with only 2% of brokers mentioning it.
Increasing costs was by far the most frequently chosen concern, with far fewer brokers choosing other options such as access to financing (9%), higher interest rates (9%), slackness (6%), and the ability to hire Or retain employees (6%) or something else.
These concerns coincide with the Bank of England’s latest inflation figures – the UK is seeing an inflation rate of 10.1%, five times the official target of 2%.
Small businesses are also worried about the support available to them. Only two in ten (22%) brokers believe that the financial measures announced by the Minister of Finance in the spring budget will have a positive impact on small and medium enterprises.
The challenging lending environment is set to continue
Despite more SMEs applying for loans to grow their businesses, and concerns about an economic downturn, data from brokers shows that a challenging lending environment remains.
More than three in four (77%) report that major banks are reducing their appetite for SME financing. Similarly, four in ten brokers (39%) saw an increase in the rejection of their clients’ applications for financing during the most recent quarter.
Willem van Linden, managing director of brokerage Rise Funding, said: “We have noticed an increase in demand for financing from our small business clients, as well as an increase in acceptance of our offers for them.
While recession fear seems to be easing a bit, there are also signs that business owners are looking to improve their cash flow and reduce monthly expenses; They seek long-term loans and consider secured loans, when previously this was not an option for them.
“I think business owners can no longer put off making financial decisions, which they may have been doing during recent bad times.”
Colin Goldstein, Director of Commercial Growth at IUKA, said: “The UK’s 5.5 million small and medium-sized business lending market is gradually gaining momentum. With more loan applications, more companies seeking financing to grow their businesses, and recession fears continuing to recede There are positive signs that the market and the health of our economy will improve.
“But while I am cautiously optimistic, I know the real challenges facing SMEs. I talk to brokers day in and day out; they see big banks cutting back on spending, huge pressures coming from the energy market, and concerns about a lack of support from the central government.”
